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Manufacturing maintains growth arc

CHINESE manufacturing continued its growth momentum for the fourth straight month in June, reinforcing optimism that an economic recovery may be under way, two surveys showed yesterday.

The official Purchasing Managers Index, compiled by the China Federation of Logistics and Purchasing as a measure of the nation's manufacturing activities, reached 53.2 last month following a reading of 53.1 in May and 53.5 in April.

The figure has been above 50 - the threshold denoting expansion - for four consecutive months.

In addition, the brokerage firm CLSA said yesterday its China PMI rose to 51.8 in June from 51.2 in May, the highest level since July last year and the third straight month for the index to record growth.

"After softening slightly in May, China's official PMI improved again last month and showed sequential economic expansion. We take it as a signal that the green shoots of economic recovery have strengthened and are likely to blossom in the second half of 2009," said Wang Qing, a Morgan Stanley economist.

"Continuity of accommodative monetary and financial conditions and follow-through in the implementation of the fiscal stimulus package should bring about robust growth in GDP in the second half of this year," Wang said. "In addition, private investment will likely catch up, as the recovery in property sales remains strong and industrial profits recently registered significant improvement."

Eric Fishwick, head of Economic Research at CLSA, said the PMI increases confirmed that growth was solidifying in manufacturing.

"Further improvement in export orders is a surprise, and domestic demand for manufacturing should continue to grow, as policy and the upturn in residential construction are gaining traction," Fishwick said.

Both Wang and Fishwick expect the PMI to continue expanding in the coming months.

The production index under the official PMI strengthened to 57.1 in June from 56.9 in May, supported mainly by domestic demand, with new orders standing at 55.5 last month.

Economists said the decline in China's exports should bottom out soon as new export orders reflected in the PMI rose to 51.4 in June, from 50.1 in May when they first entered expansionary territory.

The employment figure climbed back above 50 for the first time since last September, hitting 50.1 in June from 49.9 a month earlier, implying the country's job-protection and creation policy is working.

China's gross domestic product grew 6.1 percent in the first quarter from a year earlier, the weakest pace since at least 1992. Economists generally expect better performance when second-quarter results are posted later this month.

The main concern is weak external demand. China's exports fell 26.4 percent in May from a year earlier, a record low in at least 14 years.


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