BEIJING--A preliminary gauge of Chinese manufacturing activity
reached an 18-month high in July, in a sign that Beijing's efforts
to stimulate the economy are having an impact.
The HSBC preliminary, or flash, manufacturing Purchasing
Managers' Index rose to 52 in July from 50.7 a month earlier,
according to data released Thursday by HSBC Holdings PLC and data
firm Markit. It marked the second consecutive month that the index
topped the 50 mark, which separates expansion from contraction
compared with the previous month.
Economists said the reading was surprisingly strong and credited
the government's efforts to ease monetary policy and speed up
infrastructure investment. "The strong flash PMI points to the
robust growth momentum in the world's second-largest economy due to
the government's stimulus measures," said Lu Ting, an economist at
Bank of America Merrill Lynch.
The reading cheered markets in Asia. Hong Kong stocks rose
modestly to hit their highest level in more than three years. The
Shanghai market was moderately higher in morning trading after the
data was released.
The improving data followed a series of government stimulus
policies tailored to support China's cooling economy, which
expanded by 7.5% in the second quarter after 7.4% growth in the
first. By comparison, China's economy was growing by 7.7% at the
end of last year.
Beijing has set a target of about 7.5% growth for the full year,
but Premier Li Keqiang has signaled recently that the government
could accept growth slightly higher or lower than 7.5% as long as
employment remains at healthy levels.
China has refrained from using massive stimulus measures, as it
did during the global financial crisis in 2008 to 2009. Instead, it
has rolled out a raft of small stimulus policies, including cutting
the amount of cash banks must hold in reserve to encourage more
lending, stepping up spending on railways and offering tax breaks
for small firms.
Economists said the government's recent policies appear to have
lifted small firms, as the HSBC PMI is weighted toward smaller and
private enterprises.
In July, HSBC's subindexes for new orders as well as output were
higher, though employment remained weak.
"Economic activity continues to improve in July, suggesting that
the cumulative impact of mini-stimulus measures introduced earlier
is still filtering through," HSBC economist Qu Hongbin said in a
statement.
Better demand for Chinese goods from abroad as the U.S. and
European economies strengthen may also be helping to lift the
economy.
"China's export sector is acting as an underappreciated tailwind
to growth in 2014," said Bill Adams, an economist at PNC Financial
Services. "It was only a matter of time before stronger demand in
China's advanced economy export markets passed through to stronger
manufacturing output in China."
Zhang Fan, an economist with CIMB Securities, said the
government needs to step up its supportive policies if it wants the
rebound to last.
"If you look at other indicators like commodity prices and
electricity consumption, they are not that good," he said. "The
recovery in demand may still be quite fragile."
The preliminary PMI figure is based on 85% to 90% of total
responses to HSBC's PMI survey each month, and is issued about one
week before the final PMI reading.
Grace Zhu and Richard Silk