China’s factory activity showed no growth in May, according to an official survey, sparking concerns about the country’s economic stability amid the global energy crisis caused by the ongoing conflict in Iran. The official manufacturing purchasing managers index (PMI) fell slightly to 50 from 50.3 in April, as reported by the National Bureau of Statistics. A PMI reading above 50 indicates expansion, while below 50 suggests contraction.

Impact of Global Energy Crisis

The new orders sub-index decreased to 49.9 from 50.6 in April, and the production sub-index slightly dropped to 51.2 from 51.5. Raw material stockpiles also fell to 48.6 from 49.3. Despite these declines, China has managed to shield itself better than many countries from the global energy shock, largely due to its ample oil reserves and diversified energy sources. The Iran war has led to a surge in oil prices, particularly affecting countries reliant on oil shipments through the Strait of Hormuz.

Frederic Neumann, Chief Asia Economist at HSBC, noted that China is relatively more protected from the energy crisis due to its robust energy security setup. However, exports remain a crucial component of China’s economy. While exports to the United States have declined over the past year, global exports, especially to Europe and Southeast Asia, have remained strong.

Economic Outlook

There is optimism for a rebound in exports to the U.S. following a recent summit between President Donald Trump and Chinese leader Xi Jinping, where they agreed to establish separate boards for trade and investment. Sectors such as autos, technology, and artificial intelligence have been driving export growth. However, domestic demand continues to lag due to a prolonged slump in the property sector, affecting consumer confidence and investment.

Robin Xing, Chief China Economist at Morgan Stanley, highlighted that while domestic demand is weak, high-end manufacturing and exports are maintaining economic stability. Chinese leaders have set a modest annual economic growth target of 4.5% to 5% for 2026, the lowest since 1991. Morgan Stanley predicts that China will likely meet this target, but emphasizes that oil prices and global oil supply uncertainties will be critical factors in determining future economic trends.

Original reporting: KTBS 3 (Shreveport) — read the source article.