China’s Manufacturing Sector Recovers

[Raphael]

China's Manufacturing Sector Recovers - InvestAsian

China’s crucial manufacturing sector appears to have rebounded in May after having a weak start to the year, showing hopes that the second largest economy in the world is gaining traction.

HSBC’s preliminary measure, which is released by the bank before the official purchasing manager’s index (PMI) from the Chinese government, showed the sentiment of managers at a five-month high of 49.7. While this number is still under 50, which implies a slowdown of the country’s manufacturing sector, it is also the second month of improvement in a row and suggests a possible turning point.

“Some tentative signs of stabilization are emerging, partly as a result of the recent mini-stimulus measures and lower borrowing costs,” said Qu Hongbin, HSBC’s chief economist based in Hong Kong.

The news prompted gains across most stock indexes in the Asia-Pacific region. The Nikkei rallied 2.11%, Sydney’s exchange was up by 1.02%, Seoul gained 0.36% and the Hang Seng rose moderately by .51%, with major European markets and all three U.S. exchanges also closing higher.

The Chinese economy has expanded slower than expected this year with the country’s GDP growth during the first quarter increasing by 7.4%, just a bit slower than Beijing’s annual estimate of 7.5% . The property market, retail sales, industrial production and foreign investment figures have also performed worse than predicted.

Regardless, analysts are somewhat optimistic about future prospects. “China won’t fully lose the engine, but the engine will roar less than in the past and will be a more moderate supporter for growth,” said Louis Kuijs, Royal Bank of Scotland’s chief China economist.

The Chinese government has embarked on a campaign of “mini stimulus” measures in the past several months in an attempt to gain economic traction. These efforts have ranged from lowering taxes for small businesses, to an increase in infrastructure spending.

A statement from the State Council of China said that these stimulus programs will be maintained at least through 2016 and will consist of several different types of stimuli.