Chinese manufacturing activity expanded for the first time in four months this month, according to a closely watched indicator yesterday, pointing to renewed strength in the world’s second-largest economy.
HSBC said the preliminary reading of its purchasing managers’ index (PMI) came in at 50.1 for the month, up from last month’s 47.7, which was an 11-month low. A reading above 50 indicates expansions, while anything below signals contraction.
The tally was the highest since April’s 50.4 and ended three straight months of contraction. China is expected to announce the official PMI for last month on Sept. 1, while HSBC’s final figure will be released the following day.
“China’s manufacturing growth has started to stabilize on the back of modest improvements of new business and output,” Qu Hongbin (屈宏斌), HSBC’s chief economist for China based in Hong Kong, said in the bank’s statement announcing the figure.
He attributed the improvement to “initial filtering-through” effects of recent policy measures to boost the economy as well as restocking of inventories.”
“We expect further filtering-through, which is likely to deliver some upside surprises to China’s growth in the coming months,” he added.
Fears over China’s economic outlook were rampant during the first six months of the year as growth slowed.
The government has avoided large-scale stimulus measures, but in late last month announced limited steps to boost growth, including reducing taxes on small companies.
Positive data for last month, including an acceleration in industrial production to a five-month high, have helped improve sentiment that China’s downtrend may have hit a bottom for the time being.
Zhang Zhiwei (張智威), economist at Nomura International in Hong Kong, said the latest HSBC result was “driven by domestic demand” and reflected recent strength in other indicators.
“It confirms that the economy has stabilized in the short term and downside risks” for the year’s second half have “declined,” he said in a report.
Chris Williamson, chief economist at information services provider Markit, which compiles the data for HSBC, said despite this month’s improvement the average for the current third quarter to date comes in at 48.9, lower than the second quarter’s 49.2.
The latest survey, therefore, indicates economic growth “has remained weak in the third quarter,” he said in a report.
However, it also “suggests that the annual pace could improve on the 7.5 percent in the second quarter, which was the second-weakest pace seen for four years, providing September does not disappoint,” he added.
China’s growth slowed sharply to 7.8 percent last year from 9.3 percent in 2011 for its worst performance in 13 years on weakness in the domestic and global economies.
The government is targeting this year’s growth of 7.5 percent.