China is heading for an uneven recovery as businesses emerge from COVID-19 shutdowns.
Factory activity in the world's second largest economy grew at a slower pace in May but productivity in the services and construction sectors quickened, Reuters reports.
It is the second consecutive month that manufacturing has slowed but levels remain healthier than record lows in February when the pandemic caused travel restrictions, quarantine and factory closures.
The manufacturing Purchasing Manager's Index (PMI) eased to 50.6 in May from 50.8 in April, according to National Bureau of Statistics data. This held above the 50-point mark that separates expansion from contraction but analysts had expected a PMI reading of 51.
Export orders saw a fifth consecutive month of contraction with a sub-index standing at 35.3 in May, considerably below the 50-point mark, as the global spread of the respiratory virus affected demand.
"Judging by the PMI sub-indices, the absolute levels of demand-related indices are way below the production-related ones, indicating a pronounced constraining impact from demand on production," said Zhang Liqun, analyst, China Federation of Logistics and Purchasing (CFLP).
More than 50% of companies have reported a drop in demand, added Liqun.
But there are signs of improvement with domestic demand picking up, according to analysts with investment bank CICC.
And spending on infrastructure, is expected to give activity a boost in the second half of the year and into 2021. Meanwhile construction activity has grown to 60.8 in May from 59.7 the previous month and new orders are continuing to rise.
Non-manufacturing PMI rose to 53.6 in May, from 53.2 in April, indicating consumer confidence may slowly be improving.
China's economy shrank 6.8% in the first quarter, the first contraction since quarterly records began.
For the first time since 2002, China has not set a target for an annual growth goal.
Last week the country's central bank announced that Chinese lenders could post flat or falling profits in 2020 despite earnings growth in the first quarter.