The gradual opening up of cities such as Shanghai that were previously under lockdowns helped to improve business confidence in China in May. The NBS Manufacturing and non-Manufacturing PMIs both increased, as did their Caixin counterparts. Nevertheless, the surveys were consistent with a contracting economy, all remaining below the key 50 level that separates expansion from contraction. Worryingly for policymakers, the employment components of the surveys remained consistent with a very weak labour market. All in all, some improvement in business sentiment was not a major surprise and suggests that the rate of decline in economic activity probably eased in May. That said, the surveys support the view that the economy is likely to contract in Q2 and that the recovery thus far is quite modest. President Xi will be hoping for a stronger bounce over the summer months as key political decisions are made in the lead up to the National Party Congress.
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