Fresh signs of China's economy fragility

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Fresh signs of China's economy fragility

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Factory activity in China shrank for the first time in seven months in May.

The initial reading of surveys of manufacturers puts the blame on a fall in new orders.

That has economists worried that the country’s recovery is stalling.

The soft data is a problem for China’s top politicians, who are trying to manage the economy in such a way that there is an orderly slowdown.

They also have to look to a future where cheap labour costs are no longer a draw for foreign manufacturers

Adrian Mowat, Chief Asian Equity Strategist with JP Morgan, said: “China is very challenged demographically – we are seeing a shortage of labour for manufacturing and companies like Foxconn and Honhai need to move outside China in order to get access to lower costs.”

China’s leaders are also looking for ways to boost domestic demand thereby reducing its dependence on exports.

The factory surveys suggested weakness both at home and abroad, particularly with the patchy US recovery and Europe’s continued recession.

However most analysts do not think Beijing feels the growth slowdown is serious enough to warrant new stimulus measures.