TWO gauges of manufacturing activity in China picked up last month, adding to signs that economic growth is recovering as the government’s stimulus program takes effect.
Both the government’s purchasing managers’ index and a competing private-sector equivalent bounced back in July, offering fresh signs of recovery after policymakers moved to speed up spending on railways, cut taxes on businesses and make more credit available to small firms.
“Broadly speaking, today’s PMI reading suggests that economic activity is still being supported by healthy foreign demand along with state-led infrastructure investment and other targeted stimulus measures,” said Julian Evans-Pritchard, an economist with Capital Economics.
The official manufacturing purchasing managers’ index rose to 51.7 in July, from 51 in June, marking a 27-month high, the National Bureau of Statistics said yesterday.
It was also higher than the 51.4 median forecast of economists polled earlier by The Wall Street Journal.
A PMI reading above 50 indicates an expansion in manufacturing activity from the previous month, whereas a reading below that indicates contraction.
The official PMI’s subindex for small businesses rose to 50.1 in July, the first time the reading has topped 50 since April 2012. That was mirrored by the results of a competing index compiled by HSBC Holdings and research house Markit Economics that focuses more on small and private firms.
The HSBC PMI rose to an 18-month high of 51.7 in July compared with 50.7 in June, HSBC said.
“Policymakers are continuing with targeted easing in recent weeks and we expect the cumulative impact of these measures to filter through in the next few months and help consolidate the recovery,” HSBC’s chief economist for China, Qu Hongbin, said.
Beijing has unveiled a series of supportive policies for small businesses, which were hit hard by sluggish economic growth. The central bank cut the amount of cash banks need to hold in reserve, which boosts the amount they can lend to small firms.
The government also is offering tax breaks for small businesses.
The Chinese economy grew 7.5 per cent in the second quarter compared with a year earlier, slightly up from 7.4 per cent in the first quarter but well below the 7.7 per cent recorded in the final quarter last year.
China’s leaders have so far refrained from using massive stimulus measures as they did during the global financial crisis, and instead are relying on targeted easing measures to support sectors in need.
Both official and HSBC PMIs suggested the manufacturing sector was increasingly healthy, but it would be wise not to get carried away, said Li Wei, an economist with Standard Chartered Bank in Shanghai.
“We’re not fully convinced about the stability of the recovery,” Mr Li said. “Housing and manufacturing investment are not out of the woods yet.”
The property sector continues to drag on growth. Average home prices fell for a third straight month in July. New home prices in 100 cities surveyed by China Real Estate Index System fell 0.8 per cent in July, compared with June’s 0.5 per cent declinel.
The Wall Street Journal
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