China's RatingDog composite PMI climbs to 54 in May, topping estimates

China's economic activity accelerated in May as the RatingDog composite PMI rose to 54, the highest reading in more than a year.

China's economic expansion gained momentum in May, with the RatingDog composite purchasing managers index climbing to 54 from 53.1 in April, the highest level in more than a year and exceeding consensus expectations.

"Services activity drove the composite improvement, offsetting a modest cooling in factory output," said Wang Zhe, senior economist at RatingDog. "The data suggests domestic demand is stabilizing even as external headwinds persist."

The composite reading — which aggregates manufacturing and services activity — marked the sixth consecutive month above the 50 threshold separating expansion from contraction. The manufacturing component eased to 51.8 from 52.2, though it still beat the 51.6 consensus estimate in a Reuters poll. China's official manufacturing PMI, released by the National Bureau of Statistics, slipped to 50 in May from 50.3 in April, the lowest since February's 49 print.

The divergence between the official and private surveys underscores an uneven recovery, with state-owned heavy industry losing steam while smaller, export-oriented private firms show resilience. For global investors, the data reduces pressure on Beijing to deliver additional stimulus in the near term, though the property sector's continued drag and weakening retail sales — which hit a 40-month low in April — keep the case for targeted easing alive.

Services offset factory slowdown

The services component of the composite index was the primary driver of the headline improvement, according to RatingDog's sub-index breakdown. This aligns with official data showing services activity picked up during the extended May Day holiday, with domestic tourism spending rising during the period. Chinese hotel group H World reported that the 10 most popular destinations by occupancy rate were in smaller cities, where rates tend to be lower than major urban centers.

Inflationary pressures in the manufacturing sector eased in May, with input and output price inflation slowing, according to the RatingDog survey. This provides some relief for corporate margins after months of rising costs tied to the Iran conflict and elevated oil prices.

Policy outlook and cross-asset implications

The stronger-than-expected composite reading may reduce the urgency for the People's Bank of China to cut its policy rates in the near term. The 1-year medium-term lending facility rate currently stands at 2%, after the PBoC last reduced it by 10 basis points in September 2025. Markets had been pricing in a potential 15-bp cut in the third quarter, but the PMI data could push that timeline back.

For cross-asset markets, the data is supportive of Chinese equities and industrial commodities tied to Chinese demand. The CSI 300 has gained 4.2% over the past month, while copper prices have risen 6.8% over the same period on expectations of stabilizing Chinese demand. The offshore yuan traded at 7.18 per dollar Monday, little changed on the session, as traders weighed the positive data against ongoing trade tensions.

The last time the RatingDog composite PMI exceeded 54 was in the first quarter of 2025, preceding a 5.3% rally in the CSI 300 over the following two months. Whether history repeats depends on whether the services-led momentum can offset the drag from manufacturing and property, which together account for roughly 40% of China's gross domestic product.

This article is for informational purposes only and does not constitute investment advice.