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Rebound for state firms eases slowdown worry
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China’s manufacturing activity surprisingly strengthened in July, a reflection of policy measures geared toward large enterprises, while smaller firms reported contraction.
The official Purchasing Managers’ Index, a comprehensive gauge of operating conditions in China’s large state-owned industrial companies, increased to 50.3 last month, the China Federation of Logistics and Purchasing said yesterday. The pace advanced from June’s 50.1, ending a three-month slowdown.
A reading above 50 means expansion, and July was the 10th consecutive month in which the index was above this level.
Lian Ping, chief economist at Bank of Communications, said the rebound, though small, indicates that the manufacturing sector is less likely to weaken further.
But Zhou Hao, an economist at Australia and New Zealand Banking Group Ltd, said it did not change his overall assessment of a deteriorating economy.
“The higher official PMI may reflect some policy measures enacted in certain large companies,” Zhou said. “But it does not match some other indicators and we question how accurate this indicator is.”
The component indexes showed that production was up 0.4 points from a month earlier to 52.4, new orders gained 0.2 points to 50.6, and employment added 0.4 points to 49.1.
In contrast to the official PMI, the HSBC Purchasing Managers’ Index, which gauges conditions in mostly private and export-oriented manufacturers, posted 47.7 in July, an 11-month low which was down from June’s 48.2.
Qu Hongbin, chief economist for China at HSBC Holdings Plc, said weak demand in both domestic and external markets led to a cooling manufacturing sector, which in turn weighed on employment.
“Yet this has prompted China to introduce more fine-tuning measures, from tax breaks for small companies to more spending on public housing, railway, energy saving and IT infrastructure areas. These targeted measures should boost confidence and reduce downside risks to growth,” Qu said.
China’s economy will continue to grow at a steady pace in the second half of this year despite extremely complicated domestic and international conditions, the politburo said on Tuesday after a meeting presided over by Party chief Xi Jinping.
The authorities said macro policy will be stable and flexible while policy should support the bottom line which is believed to be between 7 and 7.5 percent.
Zhu Haibin, chief economist for China at JPMorgan, said policy uncertainty is a major driver of market sentiment and economic activities in China.
“Especially in recent months, events such as interbank liquidity crunch in June, the confusion on China’s growth target, and lack of details on policy actions to be taken have intensified market concerns,” Zhu said. “That’s why the politburo mid-year conference attempted to restore market confidence via clarification on economic policies.”
China’s economy grew 7.5 percent from a year earlier in the second quarter, which slowed further from the pace of 7.7 percent in the first three months and triggered worries for continued deterioration in the world’s second-largest economy.
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