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Economic optimism buoyed by official figures

CHINA'S manufacturing kept expanding in May, indicating the solidifying foundation of a recovery in the world's third largest economy, two surveys showed today.

The official Purchasing Managers Index, compiled by the China Federation of Logistics and Purchasing to measure manufacturing activities in the country, hit 53.1 last month.

The figure dropped a little from the 53.5 reading in April, which marked increases for five consecutive months.

Also today, the brokerage firm CLSA said its China PMI rose for the second straight month to 51.2 in May from 50.1 in April, which suggested operating conditions in the Chinese manufacturing sector have stabilized and that solid growth momentum may be building.

For both surveys, readings above 50 indicate expansion while below signal contraction.

"The fall in the official PMI reading may have reflected moderation in the recovery pace after the strong sequential expansion in March. But the sub-components of PMI indicated that the foundation of recovery has been solidified," said Wang Qing, a Morgan Stanley economist.

Key sub-indices all ran above 50 in May, including production which stood at 56.9, new orders at 56.2, new export orders at 50.1 and input prices at 53.1.

Of particular note, new export orders registered an above 50 reading for the first time since June last year, which indicates China's most battered sector in the global recession has seen the bottom.

"We believe export growth has bottomed and forecast China's economic growth will accelerate in each remaining quarter of the year," said Wang, who expected the PMI readings to remain above 50 in the coming months.

Peng Ken, an economist at Citigroup, said the official PMI was better than their expectation of 50.5. It helped to ease worries that manufacturing would drop back into a contracting mode this month.

"The smaller than expected monthly retreat in May is encouraging. This suggests stimulus efforts are sustaining production recoveries despite the seasonal pattern of May declines," said Peng.

"Overall, we think the May numbers suggest a trend to economic stability."

China's gross domestic product grew 6.1 percent from a year earlier in the first quarter, the weakest expansion since at least 1992. Exports fell 22.6 percent in April, widening from the drop of 17.1 percent in March and sparking worries of a prolonged economic slowdown.


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