China’s manufacturing expands for the first time in six months

Activity in China's factory sector expanded in June for the first time in six months as new orders surged, a preliminary HSBC survey showed today, offering new signs the economy is stabilising thanks to Beijing's measures to shore up growth.

Still, many analysts expect the government may need to roll out further steps in coming months to offset the risks from a cooling housing market and persistent export weakness, after China’s premier vowed last week that the economy would not suffer a hard landing.

The HSBC/Markit Flash China Manufacturing Purchasing Managers' Index rose more than expected to 50.8 in June from May's final reading of 49.4, beating a Reuters poll forecast of 49.7 and creeping above the 50-point level that separates growth in activity from contraction.

It was the first time since December that the PMI was in growth territory, and the highest reading since November, when it was also 50.8. The upbeat report reinforced market expectations that the world’s second-largest economy is powering through its recent soft patch, even if the recovery may be patchy.

"This month's improvement is consistent with data suggesting that the authorities' mini-stimulus is filtering through to the real economy," said Qu Hongbin, chief economist for China at HSBC, referring to a series of measures announced by the government in recent months to spur activity.

"We expect policymakers to continue their current path of accommodative policy stance until the recovery is sustained," he added. The preliminary factory reading for June indicates sequential growth could pick up to 1.8 per cent in the second quarter from 1.4 per cent in the first, Ting Lu, an economist at Bank of America-Merrill Lynch, said in a note to clients. "We expect Beijing to continue rolling out more measures to stabilize growth," Mr Lu added.

The sub-index for new orders, a proxy to measure domestic and foreign demand, rose to 51.8, the fastest pace in 15 months. Much of the increase appeared due to stronger domestic consumption, as growth in new export orders slowed sharply. Still, the survey showed an across-the-board improvement in the vast factory sector, with most of the 11 sub-indices, ranging from output to new orders and stocks of purchases, accelerating from previous months.

The flash PMI data is the earliest indicator in a month to help gauge the economic momentum and thus is closely watched by investors. Asian stock markets and the Australian dollar firmed on the news.

Reuters