HSBC: China Manufacturing Shows 'Modest Improvement'


China's manufacturing activity picked up modestly to a three-month high in July as factory output rose, boosted by government measures to stimulate the economy, HSBC said Wednesday.

The British banking giant said its closely watched purchasing managers' index (PMI), which gauges nationwide manufacturing activity, posted a reading of 49.3 in July.

That was better than the 48.2 recorded in June and represented a three-month high and the biggest month-on-month increase in 21 months, HSBC said, though was slightly below the preliminary figure of 49.5 announced last week.

A PMI reading above 50 indicates expansion, while a reading below 50 points to contraction.

Qu Hongbin, HSBC's chief economist for China, attributed what he called a "modest improvement" to the early effects of government measures to boost the economy.

"But this is far from inspiring, as China's growth slowdown has not been reversed meaningfully and downside pressures persist with external markets continuing to deteriorate," he said in statement.

Slowing economic growth in the United States and Europe's ongoing sovereign debt crisis have dented growth in China, the world's largest exporter.

Beijing has taken various steps to boost growth as the economy has faltered, expanding at its slowest pace in more than three years during the second quarter.

These include the rare move of slashing interest rates twice within a month to boost the economy, and lowering the amount of funds banks must keep in reserve, in a bid to spur lending and jump start the economy.

Official PMI figures also released Wednesday showed that China's manufacturing activity weakened to an eight-month low in July.

The government's purchasing managers' index (PMI) slipped to 50.1 last month from 50.2 in June, according to a statement released by the National Bureau of Statistics.

Analysts say the divergence in the official and private PMI surveys is caused by HSBC giving more weight to small firms, which have suffered more than state-owned giants in the current economic downturn.

The official July reading was the lowest since 49.0 last November, and below the expectations of economists surveyed by Dow Jones Newswires, who forecast it at 50.4.

Alistair Thornton of IHS Global Insight said that while the figure was disappointing, it suggested manufacturing activity may be bottoming out.

"This is not the bump that authorities are looking for," he said. "But the good news is that things are not getting significantly worse."

China is facing a loss of momentum in its economy, with year-on-year growth slowing to 7.6 percent in the second quarter.

That was the worst performance since the world economic crisis of 2008-2009 and marked the sixth straight quarter of slackening growth as global problems, including the Eurozone debt crisis, hit home.

"Industrial profitability is bad, balance sheets are stressed, the banking sector is feeling the impact of a debt build-up, and capital continues to flee the country," Thornton said. "These restrain a smooth recovery."

The International Monetary Fund said last week that China's economy will rebound in the second half of this year to expand eight percent in 2012 as government policies to spur growth take effect.