China manufacturing revs up

Stimulus measures, new orders buoy June figures

Activity in China's manufacturing sector expanded to this year's highest level in June, a sign that recent modest stimulus measures are taking effect.

China's official manufacturing purchasing managers index (PMI) rose to 51 in June, up from 50.8 in May and the highest since December, the National Bureau of Statistics (NBS) reported on Tuesday. A PMI reading above 50 indicates an expansion of the manufacturing sector, and one below 50 implies contraction.

The HSBC/Markit PMI increased to 50.7 in June, the highest since November, from 49.4 in May, according to statistics released by HSBC Holding PLC on Tuesday.

While the NBS reading is weighted more toward large State-owned enterprises, the HSBC focuses on small, privately-held manufacturers.

"Today's PMIs suggest that conditions in the manufacturing sector have continued to hold up reasonably well, helped by the government's targeted support measures along with healthy external demand," Julian Evans-Pritchard, a Singapore-based China economist at Capital Economics, said in a note e-mailed to the Global Times Tuesday.

China has unveiled a slew of mini-stimulus measures in recent months to boost the slowing economy, which is expected to grow 7.5 percent this year, the slowest pace in 24 years.

Among the measures was a cut in some banks' targeted reserve requirement ratio (RRR) to encourage lending and accelerate construction of railways and public housing. On Monday, the China Banking Regulatory Commission announced adjustments to how it calculates the loan-to-deposit ratio, as part of a bid to ease credit supply.

Although the official PMI has been increasing for four months in a row, a closer look reveals an uneven recovery. The PMI for large firms rose by 0.6 percentage points to 51.5 on Tuesday, while that for medium and small companies both slid, the NBS said. It added that separate indices for both imports and manufacturing remained below 50 in June.

While stimulus measures such as infrastructure and railway construction helped lift the PMI for large companies, financial measures including RRR cuts and tax benefits for smaller firms have not yet taken effect, said Lian Ping, chief economist at the Bank of Communications.

"As external demand spurs exports, the performance of smaller enterprises will likely improve," Lian said.

According to the NBS, the improvement in overall PMI was fueled by a jump in new orders; the NBS's new order PMI reached 52.8 in June, up 0.5 percentage points from May.

The increase in new orders was driven by new export orders. The NBS's new export order index rose to 50.3 in June from 49.3 in May due to a rebound of US growth and the depreciation of the yuan, said Lu Ting, an economist with Bank of America Merrill Lynch, in an e-mail to the Global Times.