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Manufacturing momentum maintained

CHINESE manufacturing continued its expansion momentum for the fourth straight month in June, reinforcing confidence in an economic recovery, two surveys showed today.

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. This compared with 53.1 in May and 53.5 in April.

The figure has been standing above 50 for four consecutive months - a reading above 50 indicates expansion.

Meanwhile, the brokerage firm CLSA said today 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 a growth.

"After softening slightly in May, China's official PMI improved again last month and showed sequential economic expansion for the fourth consecutive month. We take it as a signal that the green shoots of economic recovery have taken root 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 implementation of the fiscal stimulus package should bring about robust sequential growth in the headline GDP in the second half of this year. 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 the solidifying growth in manufacturing activities.

"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 gains traction," said Fishwick.

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, which was mainly underpinned by domestic demand with new orders standing at 55.5 last month.

Economists said exports should bottom out soon as new export orders further rose to 51.4 in June, versus 50.1 in May when it first entered the expansionary turf.

Employment has climbed back above 50 for the first time since last September to 50.1 in June from 49.9 a month earlier, implying the job-protection and creation policy has worked well.

China's gross domestic product grew 6.1 percent from a year earlier in the first quarter, the weakest expansion since at least 1992. But economists generally expected a better performance in the second quarter. The National Bureau of Statistics is set to release the GDP figure on July 16.

The main concern for an economic resurgence was the weak external demand. China's exports in May fell 26.4 percent from a year earlier, a record low in at least 14 years and widening from drops of 22.6 percent in April and 17.1 percent in March.


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