China's PMI hits 5-month high, pointing to stabilizing economy(2)

The upbeat data came as no surprise as the central government has unveiled a string of targeted measures to try to steady growth near its target of 7.5 percent without disrupting plans to restructure the economy or worsening problems of overcapacity and debt.

"Judged from the PMI readings of the recent two months, the growth-bolstering measures are showing effects, and the economy has been improving further," said a research note from the China Logistics Information Center (CLIC).

The think tank expects a series of new growth-boosting measures soon to produce "accumulative effects" for the whole economy in the next few months.

These so-called "targeted" measures include cutting reserve requirement ratios (RRR) for rural banks, speeding up railway and public housing construction, and tax breaks for small businesses.

On Friday, the State Council announced additional policy easing measures, promising to increase "targeted" monetary and credit easing, lower corporate financial burdens and accelerate policy implementation.

More specifically, China will lower the RRR for banks whose lending is geared toward the real economy, especially small businesses and the farming sector, according to a statement issued after a cabinet meeting.

GROWTH MOMENTUM NOT CONFIRMED

In spite of the upbeat data, experts have cautioned that it is still too early to say that the economic slowdown has completely reversed and economic momentum is confirmed.

While the sub-indices for new orders and export orders both rose in May, the sub-indices for stocking as well as production and business operations both declined, pointing to still cautious attitudes held by companies toward the future market, said Zhang.

"This means there are still no adequate conditions for economic growth to pick up in an evident manner," Zhang added.

Echoing Zhang, Cai of CFLP said, "The Chinese economy still maintains the momentum of steady growth, beating market analysis several months ago."

However, it is not the time for complacency, and the downward pressure on economic growth still deserves attention, Cai added.

While attributing the PMI pickup mainly to the "targeted" economy-boosting measures, Cai said the "endogenous power" for economic growth is yet to be confirmed, and small businesses still hold cautious expectations for future business activities.

In addition, overseas market demand remains weak and full of uncertainties despite increasing domestic demand, which could be reflected in the tiny recovery in the sub-index for export orders, Cai said.