China manufacturing sector contracts on weak output, but Japan expands on improved operating conditions

China's manufacturing activity improved from April, but the key sector remained in contraction, while operating conditions fared well in Japan, leading to an expansion in the manufacturing sector.

The HSBC China manufacturing purchasing managers' index (PMI) rose to 49.2 in May from 48.9 in April. However, the index remained below the crucial 50 neutral mark and signalled a third successive monthly deterioration in the health of China's manufacturing sector.

The flash PMI, which is based on 85%–90% of total survey responses, earlier showed a reading of 49.1 in May, compared to 48.9 in April.

"A solid fall in new export work contributed to fewer new orders, which in turn led to the first contraction of output in 2015 so far," said Annabel Fiddes, economist at Markit.

"Furthermore, sustained job cuts, ongoing destocking activities and reduced purchasing activity all suggest that the sector may remain in contractionary territory as we head into mid-year."

Fiddes added that the government is required to take more stimulus measures to help boost domestic demand and recover growth momentum.

Meanwhile, the headline Markit Japan manufacturing PMI surged to 50.9 in May from 49.9 in April. The reading was unchanged from the flash PMI released earlier.

"The latest PMI signalled an improvement in operating conditions in the Japanese manufacturing sector," said Amy Brownbill, economist at Markit.

"Both growth in production and new orders resumed, having contracted in the previous survey period. According to survey participants a rise in client demand helped by new product launches and enhanced marketing strategies led to the latest increase in new work intakes."

Nevertheless, growth in new export orders was weak and lower than the average for the current 11-month sequence of expansion, despite lower exchange rates for the yen against the US dollar.