(Yicai) June 1 -- Activity in China's manufacturing sector retreated to the line dividing expansion from contraction in May, after expanding for two straight months, as weak overseas demand weighed on new orders.

The manufacturing purchasing managers index fell to 50 last month from 50.3 in April, according to data released by the National Bureau of Statistics yesterday. The PMI stood at 50.4 in March, the highest in 12 months. A reading above 50 signals expansion, while anything below that points to contraction.

The further softening in May’s number suggests that the economy’s growth momentum still needs to be reinforced, said Zhang Liqun, special analyst at the China Federation of Logistics and Purchasing.

New orders fell to 49.9 from 50.6 last month, sinking back below the boom-bust line. New export orders dropped to 48.6 from 50.3, mainly resulting from a shrinkage in shipments of consumer goods.

Production inched down to 51.2 from 51.5, remaining in expansion territory for the third straight month. Purchasing volume fell to 49.8 from 51.1, while business sentiment eased to 53.9 from 54.5, showing that manufacturers still have a relatively optimistic outlook.

The drop in new orders suggests that demand issues remain prominent, Zhang noted, adding that production, purchasing volume, and sentiment all dropped as a result.

The manufacturing sector is expected to remain in a modest expansion range this month, supported by ongoing pro-growth policy measures and by the expansion of high-tech sectors such as artificial intelligence, said Wen Tao, analyst at the China Logistics Information Center.

The non-manufacturing PMI, which includes construction and services, moved into expansion territory in May, rising to 50.1 from 49.4, the NBS data also showed. Service sector activity climbed to 50.3 from 49.6, while that of the construction industry increased to 48.8 from 48, helped respectively by Labor Day holiday-related consumption and continued infrastructure investment.

The services PMI faces near-term pressure because the real estate market is still adjusting and consumer confidence remains insufficient, said Wang Qing, chief macroeconomic analyst at Golden Credit Rating International. He said further policy support will be needed in the second half of the year to steady the property market and encourage service consumption.

The composite PMI output index for May, which combines the manufacturing PMI's production sub-index and the non-manufacturing PMI, rose to 50.5 in May from 50.1 the previous month, returning to the level seen in March.

Editors: Dou Shicong, Futura Costaglione