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September 1, 2013 5:28 am
A gauge of China’s manufacturing sector jumped to a 16-month high in August as the economy perked up on the back of government policy support.
The official Chinese purchasing managers’ index climbed from 50.3 in July to 51 in August, topping most forecasts for the second straight month. Readings above the watershed line of 50 indicate an expansion in activity.
After a shaky half year for the Chinese economy, the strong PMI results bode well for growth in the coming months.
“The data continued to beat expectations. It’s good news. It suggests that the economic recovery is improving,” said Zhu Haibin, an economist with JPMorgan. “It’s moving from downside risks to upside risks.”
Analysts have pointed to two main factors for the upturn in China. First, credit growth surged at the start of the year, but that wave of financing is only just now translating into real economic activity.
Second, over the past three months, the government has taken a series of steps – referred to by some as a “mini-stimulus” – to boost growth. It has cut taxes for small businesses, provided support for exporters and, most importantly, boosted investment in rail and infrastructure.
Liu Ligang and Zhou Hao, economists with ANZ, calculated that 58 per cent of the government’s full-year budget will be spent in the second half of the year.
Adding to the optimism, the PMI index for new orders – a leading indicator for the economy – jumped to 52.4, from 50.6 in July. Although that was largely powered by strong domestic demand, it also reflected an improvement in external demand as the index for new export orders rose from 49 to 50.2.
Nevertheless, the PMI still revealed a sharp divergence in fortunes across China’s vast economy. The PMI for big businesses was 51.8, but smaller businesses posted their 17th successive month of contracting activity with a reading of 49.2.
“This signifies that the operating conditions for small businesses are still very difficult. The central government has to push hard to deliver policy support to them,” said Zhao Qinghe, a government statistician.
After Chinese growth slowed to 7.5 per cent year on year in the second quarter, many analysts and investors questioned whether the government was ready to let the economy fall below its full-year 7.5 per cent growth target.
But Li Keqiang, China’s premier, said Beijing was confident of meeting that target, and the recent improvement in economic data appears to have proved him right.
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