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China Voice: Recovery beats expectations but risks still lie ahead

English.news.cn   2014-08-04 15:38:22

BEIJING, Aug. 4 (Xinhua) -- Chinese decision-makers may breathe a sigh of relief as more macro indicators suggest the economy is recovering stronger than market expectations, despite concerns that an unprecedented anti-corruption drive has weighed on growth.

Both the official and HSBC manufacturing purchasing manager's index (PMI)- a key measure of factory activity in China - reports for July showed signs of positive recovery.

The official PMI released Friday, which samples 3,000 nationwide enterprises of various sizes, reached its highest level in more than two years at 51.7, up from 51 in June. The reading, the fifth consecutive month of recovery, was stronger than the market consensus forecast of 51.4.

The HSBC PMI, which samples 420 small- and medium-sized enterprises, showed similarly positive results reaching 51.7 for July. It indicates the strongest rate of improvement for China's manufacturing sector in a year and a half.

The two PMIs are among the earliest available indicators to gauge operating conditions faced by Chinese manufacturers in July.

The better-than-expected readings suggest the Chinese economy is improving thanks to a series of growth-supportive measures introduced by the government in the second quarter. The measures included investment in railways, urban infrastructure and shanty town renovation projects nationwide.

The two PMIs also suggest that China's economic improvements, starting in June, have continued into July.

Earlier activity data shows a significant increase in China's key macro indicators began in June, including monthly fixed asset investment, industrial production, profit at major Chinese industrial companies and industrial sales.

For the second quarter, China's economy beat market expectations by expanding 7.5 percent year on year and 2 percent quarter to quarter.

China had suffered a worrisome slowdown in the first quarter with many macro indicators weaker than market consensus forecasts, posing a significant threat to the government's commitment to achieving "around 7.5 percent" growth target in 2014.

In response, China introduced a series of growth-supportive measures. The Chinese leadership has been intensifying the anti-corruption campaign this year indicating more strongly than ever, they desire a stable economic and financial backdrop.

Latest macro indicators suggest that these measures have been instrumental in helping China's economy recover more quickly than expected.

Many experts believe the cumulative impact of monetary easing efforts, through targeted liquidity provision, and growth-supportive measures will continue to help bolster the Chinese economy for the rest of this year.

The recent improvement of key macro indicators has helped the market regain some confidence.

Chinese equities made notable progress in July, with the benchmark Shanghai Composite Index advancing 7.48 percent last month. It marked the best month for China's equity markets since December 2012.

HSBC and Bank of America Merrill Lynch upgraded their forecasts for China's year-on-year gross domestic product growth in 2014. HSBC raised its forecast to 7.5 percent from 7.4 percent, while the latter lifted its prediction to 7.4 percent from 7.2 percent.

Confidence is being restored, but the world's second largest economy is still faced with significant pressure and risks.

Among them, the property sector drew the most attention. In the second quarter, new sales and property investment in China slid, with the former contracting further and the latter's growth sinking to a 20-month low.

Another concern is local governments' rising debts and possibly inadequate fiscal capabilities as the central government asked them to implement growth-supportive measures.

Editor: Mengjie
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