Tags: Data | China | Economy | Stabilizing

Data Indicate China's Economy May Be Stabilizing

Sunday, 04 Aug 2013 12:33 PM

China’s economic slowdown may be stabilizing after manufacturing and services surveys showed faster expansion and gauges of business expectations rose.

The non-manufacturing Purchasing Managers’ Index showed the first acceleration since March, government data released Saturday showed, following an unexpected gain in the official manufacturing PMI last week. HSBC Holdings Plc and Markit Economics were to release a China services index later Sunday.

The reports may bolster confidence that Premier Li Keqiang’s policies are helping prevent a deeper slowdown in economic growth, allowing him to pursue reforms that will secure more sustainable longer-term expansion. The country’s economic planning agency said yesterday the construction of transport-related infrastructure projects will be accelerated, adding to government efforts to boost domestic demand that have included changes to the tax system and help for small companies.

“The PMI is supposed to be a leading indicator so we are witnessing a stabilization and a sign the economy isn’t slowing down at a faster rate,” said Steve Wang, Hong Kong-based chief China economist with Reorient Financial Markets Ltd. “A lot of economy-boosting measures have been put in place since the beginning of the year and there’s a time lag for those to kick in, so we should see a bit of a rebound in the fourth quarter.”

China’s economy grew 7.5 percent from a year earlier in the April-June period, slowing for a second straight quarter and extending the longest streak of sub-8 percent expansion in at least two decades. Wang says he sees second-half growth of 7.6 percent, the same as the pace in the first six months.

‘Reasonable Zone’

The government set a 2013 expansion target of 7.5 percent after gross domestic product rose 7.8 percent last year, the least since 1999. The country’s potential growth rate has fallen to a range of 7 percent to 8 percent, the State Council Information Office said last week, pledging not to allow economic growth to decelerate outside a “reasonable zone.”

The State Council, led by Li, has indicated it will refrain from implementing a stimulus package of the scale unleashed during the 2008 global crisis. Instead, it has issued targeted policies including tax breaks, support for infrastructure investment and for small companies while curbing industrial overcapacity and reining in financial risks to aid economic restructuring.

The National Development and Reform Commission said yesterday that 10 transport-related projects should begin in the second half of the year and work on a new airport for Beijing may start early, helping to boost growth in demand from the transport industry. The commission has already approved eight local rail projects including two new lines in Shenyang and one in Wuhan, it said in a statement on accelerating construction of infrastructure projects.

Rising Expectations

Beijing won approval for a new airport in the south of the city in January and construction was scheduled to start in 2014, the Beijing News reported on Jan. 13, citing Zhu Wenxin, a project official. Investment is expected to exceed 70 billion yuan ($11.4 billion), it said. Xinhua reported in April that the airport will open in 2018.

The non-manufacturing PMI rose to 54.1 in July from 53.9 in June, according to the National Bureau of Statistics and China Federation of Logistics and Purchasing. The index hasn’t dropped below 50, the dividing line between expansion and contraction, since a new data series started in March 2011. A gauge of business expectations in the survey rose to 63.9, the highest since December.

Stable Growth

The non-manufacturing report indicates a “relatively good start to second-half economic activities,” Cai Jin, a vice chairman at the logistics federation, said in the Aug. 3 data release. “The foundation and conditions to ensure stable economic growth are there even though we continue to face challenges.”

The official manufacturing index, published Aug. 1, unexpectedly rose to 50.3 in July from 50.1 in June and a measure of business expectations rose to 56.4, the highest since April. A separate gauge released the same day by HSBC and Markit Economics fell to 47.7, an 11-month low and the third straight month of below-50 readings.

While the employment index in the official manufacturing PMI had a below-50 reading for a 14th month, the gauge in the non-manufacturing report showed expansion, with a figure of 51.3, down from June’s reading of 51.5.

“Jobs aren’t being created in manufacturing, it’s services where all the growth is going to come from, especially sectors like e-commerce, with companies like Alibaba,” Reorient’s Wang said, referring to China’s biggest e-commerce company that runs online shopping platform Taobao Marketplace.

Services Growth

Industries including leisure, e-commerce and transport are becoming a bigger part of the economy, supporting the government’s efforts to shift the focus of growth away from investment and exports. Their contribution to GDP in the first quarter exceeded that of manufacturing for the first time, the central bank said in April.

Service industries accounted for about 45 percent of GDP last year, according to statistics bureau data, up from 41 percent in 2003. The government is seeking to increase the share to 47 percent by 2015, according to its five-year plan. In the U.S., services comprise about 90 percent of the economy.

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China's economic slowdown may be stabilizing after manufacturing and services surveys showed faster expansion and gauges of business expectations rose.
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2013-33-04
Sunday, 04 Aug 2013 12:33 PM
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