By Gina Lee

Investing.com – China’s May factory activity grew at the fastest pace in 2021 so far, driven by increasing demand from both domestic and global markets. However, some companies are struggling with the higher prices of raw materials and supply chain disruptions.

Data released earlier in the day said that the Caixin Manufacturing Purchasing Managers’ Index (PMI) increased to 52 in May, the highest level since December 2020. It was also above the 51.9 figure in forecasts prepared by Investing.com, with the same figure reported for April.

The Caixin figure comes a day after the release of May’s manufacturing PMI by the National Bureau of Statistics, which read 51.0. Both the Caixin and manufacturing PMIs were above the 50-mark indicating expansion.

New orders increased at the fastest pace so far in 2021, while May’s export orders were at their highest levels since November 2020. However, factory output, though remaining solid, was slightly lower than in April.

“Rapidly rising commodity prices began to disrupt the economy as some enterprises began to hoard goods, while some others suffered raw material shortages. Supply chains were also significantly affected,” Wang Zhe, senior economist at Caixin Insight Group, said in comments accompanying the data.

Manufacturers were forced to pass on some of the price pressure to customers, which led to the quickest rising pace of output prices in a decade as well as the fastest rate of increase in charges for exported goods in three years.

Prices for commodities as coal, steel, iron ore and copper have jumped due to demand growth in countries that are slowly exiting lockdown. This has concerned China’s policymakers, who have called for tightened scrutiny of supply and demand and to crack down on "malicious speculation”.

Metal prices decreased following the warnings, but investors are unsure how long will it last as global demand continues to improve slowly.

China’s economy posted record growth in the first quarter of 2021 amid its ongoing economic recovery. But investors expect the rapid expansion will moderate later this year.

Officials warn that the foundations of the recovery are not secure due to higher raw material prices and recent COVID-19 outbreaks in some countries.

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