China’s manufacturing activity strengthened to a five-month high in May, the government said Sunday, an optimistic sign amid slumping growth in the world’s second-largest economy.
The official purchasing managers index (PMI) reached 50.8 in May, the National Bureau of Statistics said in a statement, up from 50.4 in March.
The index tracks manufacturing activity in China’s factories and workshops and is a closely watched indicator of the health of the economy. A reading above 50 indicates growth.
The result, the third straight month of improvement, beat the median forecast of 50.6 in a survey of eight economists by Dow Jones Newswires.
A private survey published last month by British bank HSBC put China’s PMI at a preliminary 49.7 in May — also a five-month high — and above April’s 48.1.
China’s official May result was the highest since a reading of 51.0 in December.
“The improvement of both PMIs suggest that the economic activities have stabilised somewhat due to the recent pro-growth policies”, ANZ Bank economists Liu Li-Gang and Zhou Hao said in a research note.
They cited an acceleration in budgeted fiscal spending and tax rebates to help exporters announced earlier this year.
The May PMI data came after China’s economic growth for the first three months of 2014 came in at its weakest pace in 18 months.
Gross domestic product grew 7.4 per cent in the first quarter from the same period the year before, weaker than the 7.7 per cent in the October-December period.
The result was the worst since a similar 7.4 per cent expansion in the third quarter of 2012.
China’s leadership says it wants to make private demand the key driver for the country’s economic growth, moving away from over-reliance on huge and often wasteful investment projects that have girded decades of expansion.
Such a transformation is expected to result in growth that is slower but seen as more sustainable in the long run.
China in March set its annual growth target for this year at about 7.5 per cent, the same as last year.
Officials, including Premier Li Keqiang, have been quick, however, to stress that the target is flexible — seen as a hint it may not be achieved.
Still, China on Friday signalled it will further ease monetary policy to support the economy by cutting the amount of funds that some banks must hold in reserve, a sign officials are concerned.
The State Council, China’s cabinet, announced that it would trim reserve requirements for banks which lend to the agricultural sector and small enterprises.
China launched a similar, targeted reserve cut for banks in rural areas just over a month ago amid escalating worries the economy is slowing more sharply than expected.
“In our view, these targeted ‘mini stimulus’ measures are not sufficient enough to prevent the sentiment from deteriorating again,” the ANZ economists said.
“We maintain our call that it is necessary to cut reserve requirement ratio for the whole banking sector”, they added, saying that would “send out a strong policy signal” that authorities will support growth even as they pursue economic reforms.
Cutting reserve requirements is seen as a way to boost economic growth by freeing up cash that banks can potentially lend out.
Source : Channel News Asia | June 1, 2014