New orders lift factories to 18 month high in China

China's manufacturing sector may deliver its best performance in 18 months in July with indications of a stabilizing economy, a survey revealed yesterday.
The HSBC Flash China Manufacturing Purchasing Managers’ Index, the earliest available indicator of China’s industrial sector, rose to 52 this month, up from June’s reading of 50.7, according to HSBC and research firm Markit.
A reading above 50 means expansion, and it was the second straight month that the index had crossed the mark.
Qu Hongbin, the chief economist for China at HSBC, said both new orders and new export orders expanded at a faster pace, while employment and prices also improved. “Economic activity continued to get better in July, suggesting that the cumulative impact of the mini-stimulus measures introduced earlier is still filtering through,” Qu said. “We expect policymakers to maintain their accommodative stance over the next few months to consolidate the recovery.”
Chang Jian, an economist at Barclays, said the reading was stronger than expected for the second straight month.
“It suggests that the government’s targeted measures have helped support growth in the second quarter, and they are likely to extend in the second half,” Chang said.
China’s gross domestic product expanded 7.5 percent in the second quarter, picking up from the 7.4 percent in the first three months after the government launched a set of targeted policies including tax breaks, more investment in railways, less reserve requirement for banks and export rebates to bolster growth.
Chang Chun Hua, an economist at Nomura, said the improvement in manufacturing was “across the board.”
“The growth momentum continues to build in this quarter because of easing of measures and the improvement in exports,” Chang said. “We maintain our forecast that the growth will stay at 7.5 percent in the third quarter and move up to 7.6 percent in the fourth quarter.”
The components showed that new orders rose to 53.7 in July from 51.8 in June, and new export orders increased 2 points to 52.7. Production also expanded 1 point to 52.8 this month, indicating stronger performance across the manufacturing sector.
But still, analysts said more monetary and fiscal policy easing, including targeted measures, was needed to sustain the growth momentum in the second half. Premier Li Keqiang said on Wednesday that China will take steps to give more financing support to the real economy while keeping credit at a proper level.