China Services to Manufacturing Suggest Slowdown Easing
China’s economy is showing signs of stabilizing after slowing for two straight quarters, with official manufacturing and services indexes rising and gains in gauges of business expectations.
The non-manufacturing Purchasing Managers’ Index rose to 54.1 in July from 53.9, the first acceleration since March, government data showed Aug. 3, following last week’s unexpected gain in a manufacturing PMI. Readings above 50 indicate expansion. A services index from HSBC Holdings Plc and Markit Economics was unchanged at 51.3, a separate report showed today.
The reports may bolster confidence that Premier Li Keqiang’s policies are helping prevent a deeper slowdown in 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 transportation-related infrastructure projects will be accelerated, adding to efforts to boost domestic demand that have included tax-system changes 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.”
The benchmark Shanghai Composite Index of stocks rose 0.8 percent at 2 p.m. local time. The central bank said in an Aug. 2 report that it has rolled over some maturing three-year bills and will keep doing so in the future to lock up long-term liquidity.
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.
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 transportation-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.
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 was released by the National Bureau of Statistics and China Federation of Logistics and Purchasing. The index hasn’t dropped below 50 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.
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 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.
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.
--Alan Wong, Luo Jun, Nerys Avery. With assistance from Regina Tan in Beijing and Rina Chandran in Singapore. Editors: Nerys Avery, Scott Lanman
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