The pace of China's factory output eased last month as gradual policy tightening took a toll on new orders, suggesting to some economists that Beijing will take its time before nudging interest rates higher.
But a pair of surveys of manufacturing executives pointed to a loss of momentum, not a sudden stop, in the world's third-largest economy, which is underpinned by rising incomes and vast infrastructure spending.
The purchasing managers' index (PMI) issued by the China Federation of Logistics and Purchasing eased to 53.9 in May from 55.7 in April. That was close to the median forecast of 54.0.
A companion index compiled by British research firm Markit for HSBC dropped to an 11-month low of 52.7 in May from a downwardly revised 55.2 in April.
Beijing has applied the brakes to money and credit growth and has rolled out a raft of measures to deter speculative buying in real estate. The central bank has also raised the proportion of deposits that banks must hold in reserve, rather than lend out, three times this year.
But China has resisted international pressure to let the yuan rise and has kept benchmark interest rates unchanged despite an acceleration in year-on-year gross domestic product growth to 11.9 per cent in the first quarter from 10.7 percent in the final quarter of 2009.
Prime minister Wen Jiabao, speaking in Tokyo, said yesterday that Chinese growth was on track but that it was too early for countries to consider withdrawing anti-crisis stimulus policies.
The PMI indexes are closely watched because they give a timely snapshot of how industry is faring. An index reading over 50 denotes expansion; a sub-50 figure signals contraction.
The slower growth suggested by the PMIs weighed on share prices. The MSCI index of Asia Pacific ex-Japan stocks, which has been underperforming world equity markets so far this year, fell 0.93 per cent.
Shanghai stocks ended the morning with a fall of just over 1 per cent.
But May's reports reinforced the suspicions of some economists about the reliability of the surveys.
Goldman Sachs economists Yu Song and Helen Qiao noted that the official PMI has consistently fallen in May - when there is a long public holiday - since it was launched in 2005.
"After adjusting for this seasonality, the May reading was slightly higher than its April reading. Therefore, we would not view the softening in the headline PMI as a sign of much softer industrial growth in May," they said in a note.
Zhang Liqun, a government economist, said it was tough to judge whether the decline was due solely to these seasonal factors.
The moderation in the indexes was broad-based. They indicated that the pace of output, new orders and employment all softened, while the prices paid by companies for their inputs rose less sharply.
Reuters