China’s manufacturing gathers pace

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Xiaoqing Pi Beijing

China’s manufacturing expanded at the fastest pace in five months in May, in a sign the government’s measures to counter an economic slowdown are gaining traction.

The purchasing managers’ index (PMI) rose to 50.8 last month, the National Bureau of Statistics and China Federation of Logistics and Purchasing said in Beijing yesterday, compared with the 50.7 median estimate of analysts. April’s reading was 50.4, with numbers above 50 indicating expansion.

The Communist Party has stepped up the pace of stimulus measures, including faster spending from government budgets and increased railway investment, to help meet an official economic growth target of about 7.5 percent this year.

Authorities are contending with a property market slump that threatens the economy while they try to sustain efforts to limit shadow banking, pollution and corruption.

“After a disappointing start this year, growth is being stabilised thanks to the government’s mini-stimulus,” Lu Ting, the head of greater China economics at Bank of America in Hong Kong, said.

At the same time, he said, the “below-51 PMI is still weak, and there are still strong headwinds due to the downturn of the property sector and the anti-corruption campaign”.

PMI estimates from 30 analysts ranged from 50.1 to 51.5.

A separate manufacturing PMI from HSBC Holdings and Markit Economics rose to a five-month high of 49.7 last month, based on a preliminary reading released on May 22. The final number is due tomorrow.

The government’s PMI is based on survey responses from purchasing executives at 3 000 companies, while the HSBC-Markit report comes from more than 420 firms.

The State Council, or cabinet, said on Friday that it would cut the reserve-requirement ratio for lenders that had extended a certain amount of loans to rural borrowers and smaller companies.

The People’s Bank of China would set up a relending facility for smaller companies and had set this year’s quota at 50 billion yuan (R86bn), state television reported on Saturday.

Most sub-indices in the official PMI rose last month. Output increased to a four-month high and the measure of new orders was at the highest since November last year. However, the employment gauge fell to 48.2 from 48.3, continuing to signal contraction.

China’s stimulus showed signs of helping companies other than the biggest ones, with a PMI for medium-sized enterprises rising to 51.4 from 50.3 in the data. That compared with 50.9 for large companies, up from April’s 50.8, and a 48.8 reading for small enterprises that was unchanged from the previous month.

Growth in industrial production, fixed-asset investment and retail sales from a year earlier unexpectedly decelerated in April.

A cooling property market threatens to limit any rebound, with a 22 percent drop in new building construction in the first four months of the year and last month’s drop in home prices from April that was the first in almost two years, according to SouFun Holdings, the nation’s biggest property website owner.

The second-largest economy is projected to grow 7.3 percent this year, which would be the weakest pace since 1990, according to an analysts’ survey last month.

Expansion slowed to 7.4 percent year on year in the first quarter, from 7.7 percent in the previous period.

The interbank market showed the central bank was easing monetary policy, Standard Chartered analysts said in a report last week. A daily fixing of the seven-day repurchase rate fell 0.93 percentage points last month to 3.25 percent. – Bloomberg


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