China’s factory activity slows in May

China’s factory activity was flat in May, raising questions about how long the country’s economy can protect itself from the fallout of the ongoing Iran war and pressure on demand.

The official manufacturing purchasing managers’ index fell to 50 from 50.3 in April, according to the National Bureau of Statistics’ official survey published on Sunday.

PMI is measured between 0 and 100. A reading above 50 reflects expansion, while a reading below 50 reflects contraction.

While the new orders sub-index decreased from 50.6 in April to 49.9, the production sub-index decreased from 51.5 in April to 51.2. Raw material stocks sub-index decreased from 49.3 to 48.6 in April.

China was less affected by the global energy shock of the Iran war than many other countries, which faced inflationary pressures due to rising oil prices due to the closure of the Strait of Hormuz, through which one-fifth of the world’s oil is transported in peacetime.

Analysts say China’s vast oil reserves and diverse energy resources helped the world’s second-largest economy weather the war virtually unscathed.

“While the energy crisis remains the key headwind for Asia, China remains relatively protected given its strong energy security framework,” Frederic Neumann, chief Asia economist at HSBC bank, said in a research note last week.

Exports, meanwhile, continue to play a key role for China’s overall economy, HSBC said.

While China’s exports to the United States fell on an annual basis for most months last year, its global exports remained strong, especially to Europe and Southeast Asia.

Hopes for a recovery in exports to the United States increased after President Donald Trump held a summit with Chinese leader Xi Jinping in Beijing in mid-May and the two countries agreed to establish separate trade and investment boards.

Exports related to autos, technology and artificial intelligence are helping drive export growth, but some economists also point to concerns about the broader economy. Domestic demand remains stagnant following a years-long collapse in the property sector, which has disrupted consumer confidence and investment.