China HSBC Manufacturing Index Rises to Four-Month High

A Chinese manufacturing gauge rose to a four-month high, signaling that the economy is stabilizing even as job cuts and weakness in the property market underscore pressure on the government to do more to support growth.

A Purchasing Managers’ Index (MXAP) from HSBC Holdings Plc and Markit Economics was at 49.4 in May, up from 48.1 in April. At the same time, the number was below the 49.7 median forecast in a Bloomberg News survey of analysts.

The government will cut reserve requirements for some banks, boost support for small businesses and speed up spending of budgeted funds, as Premier Li Keqiang seeks to meet an official expansion target of about 7.5 percent this year. Authorities are contending with a property slump that threatens growth while they try to sustain efforts to limit shadow banking, pollution and corruption.

“The final PMI reading for May confirmed that the economy is stabilizing, but it is too early to say that it has bottomed out, particularly in light of a weaker property sector,” Qu Hongbin, HSBC’s chief China economist in Hong Kong, said in a statement. “Stronger policy support is warranted,” and “we expect both monetary and fiscal policy to be loosened gradually over the coming months,” Qu said.

Asian stocks pared gains after the report, which was below the preliminary reading of 49.7, before rebounding. The MSCI Asia Pacific Index rose 0.5 percent as of 5:18 p.m. in Tokyo. China’s benchmark interest-rate swaps fell after the May 30 statement on reserve requirements. The nation’s financial markets were closed yesterday for a holiday.

Official Gauges

A state-backed PMI rose to a five-month high of 50.8 last month, according to a report June 1. The official non-manufacturing PMI increased to 55.5 in May, the highest since November, a separate release showed today.

Numbers below 50 signal contraction. Estimates for today’s final figure from 16 economists ranged from 49.5 to 49.9. The HSBC-Markit report is based on survey responses from more than 420 companies, while the government’s PMI comes from 3,000 enterprises.

While the HSBC-Markit survey showed new export orders expanding at the fastest pace in more than four years, it also indicated that companies accelerated job cuts to the quickest rate in three months.

The central government has intensified steps to sustain growth in recent weeks, even after Chinese President Xi Jinping said the nation needs to adapt to a “new normal” in the pace of expansion.

Bank Reserves

The State Council, or cabinet, said May 30 it will cut the reserve-requirement ratio for lenders that have extended a certain amount of loans to rural borrowers and smaller companies. The People’s Bank of China will set up a re-lending facility for smaller companies and has set this year’s quota at 50 billion yuan ($8 billion), state television reported May 31.

The Finance Ministry on May 28 called for faster spending of budgeted funds. Guangdong province, the largest regional economy, will allocate 64.7 billion yuan to support growth, according to a May 27 report on the local government’s website.

The world’s second-largest economy is projected to grow 7.3 percent this year, which would be the weakest pace since 1990, according to a survey of analysts in May. Expansion slowed to 7.4 percent in the first quarter from a year earlier, compared with 7.7 percent in the previous period.

Nomura Holdings Inc. raised its second-quarter growth forecast to 7.4 percent from 7.1 percent, reflecting improvement in the PMI indicators and the “intensification of policy easing measures already taken, with more expected,” according to a note today from analysts led by Zhang Zhiwei, chief China economist in Hong Kong.

Demographic Challenges

China faces demographic challenges that could limit longer-term growth after more than three decades of a policy that limited most couples to one child. Leaders decided last year to let families have a second infant if either parent is an only child.

The working-age population will shrink to about 900 million by 2020 and 850 million by 2028, according to estimates given at a briefing in Beijing today by Zhai Zhenwu, a professor at Renmin University of China who advises the government on family-planning policy. The statistics bureau said in January that the working-age population, defined as those ages 16 to 59, fell 2.4 million in 2013 to 919.5 million.

The government isn’t willing to do everything possible to maintain its working-age population at 900 million and will instead seek economic growth by improving “population quality” and through science and technology, Yang Wenzhuang, a department director-general at the National Health and Family Planning Commission, said at the briefing.

Population Peak

China’s broader population will peak at about 1.46 billion by 2030, rising from 1.36 billion in 2013, Yang said. The nation will seek a greater contribution from older citizens, Yang said. The government said last year it’s planning to raise the retirement age for the first time since the 1950s.

The country has 10 million couples qualified to have a second child under the revised policy, according to a statement handed out at the briefing. Allowing anyone to bear a second infant would give 139 million women the right to do so, which would challenge health-care and education facilities, indicating that China needs to maintain strict birth controls, according to the statement from the briefing held at China’s Ministry of Foreign Affairs.

To contact Bloomberg News staff for this story: Scott Lanman in Beijing at slanman@bloomberg.net

To contact the editors responsible for this story: Paul Panckhurst at ppanckhurst@bloomberg.net Arran Scott, Scott Lanman

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