China Manufacturing Expands at Fastest Pace This Year

China’s manufacturing expanded in June at the fastest pace this year, adding to signs that the government’s efforts to arrest a slowdown are helping to stabilize the world’s second-biggest economy.

The Purchasing Managers’ Index was at 51.0, the National Bureau of Statistics and China Federation of Logistics and Purchasing said today in Beijing, matching analysts’ median estimate and increasing from May’s 50.8. A similar index from HSBC Holdings Plc and Markit Economics rose to 50.7 from the previous month’s 49.4. Numbers above 50 signal expansion.

The official subindex of new orders tied for the highest level in more than two years, giving momentum that will help protect the government’s growth target of about 7.5 percent in

2014. A slumping property market and rising bad debts threaten to sap any gains in the second half.

“The mini-stimulus has boosted confidence -- that is pretty clear,” said Chen Xingdong, chief China economist at BNP Paribas SA in Beijing. “But from the current situation, you can hardly draw the conclusion that the economy has stabilized and has no problem at all. The biggest risk is still the property market.”

The MSCI Asia Pacific Index of stocks extended gains after the reports and was up 0.3 percent as of 4:21 p.m. in Tokyo. China’s benchmark Shanghai Composite Index rose 0.1 percent at the close.

Estimates for today’s official number from 33 analysts ranged from 50.6 to 52.0.

Preliminary Reading

The official index, based on survey responses from purchasing executives at 3,000 companies, was the highest in six months. The HSBC-Markit gauge, from a survey of more than 420 enterprises, was at a seven-month high and compared with a preliminary reading of 50.8 released June 23.

Analysts raised economic forecasts after China’s leaders intensified pro-growth efforts in late May, almost two months after outlining what some analysts dubbed a mini-stimulus. The economy is projected to grow 7.4 percent this year, according to the median estimate in a Bloomberg survey last month, up from a

7.3 percent forecast in May.

The government’s PMI shows that “measures to stabilize growth have taken effect,” with many subindexes showing improvement, Zhang Liqun, a researcher with the State Council’s Development Research Center, said in a CFLP statement.

China will release second-quarter gross domestic product figures on July 16. The economy probably grew 7.4 percent from a year earlier, the same pace as the previous period, based on the median estimate of analysts in June.

Loan Ratio

In the latest pro-growth measure, regulators yesterday announced changes in the way loan-to-deposit ratios are devised to give banks more capacity to lend money. Previously the central bank lowered reserve requirements for banks who direct loans to rural borrowers and smaller companies, while the Finance Ministry called for faster spending of budgeted funds.

“The rise of both PMIs suggests that the growth momentum has been picking up due to the recent pro-growth policies,” including infrastructure investment and faster spending from budgets, Liu Li-Gang, chief Greater China economist at Australia & New Zealand Banking Group Ltd. in Hong Kong, said in a note today.

Premier Li Keqiang’s recent pledge to meet the growth goal indicates that the “overall policy stance will become more supportive for growth in the second half,” Liu wrote.

Not Uniform

The improvement in today’s data wasn’t uniform. The official subindex for large enterprises rose to 51.5 from 50.9, while the gauge for medium-sized companies fell to 51.1 from

51.4 and the level for small businesses declined to 48.4 from


BNP’s Chen said the official PMI has a limited sample of small enterprises and might happen to cover those that aren’t benefiting from targeted easing or stimulus. The HSBC-Markit survey covers more export-oriented companies, which may account for the difference, he said.

Sharper economic slumps in some areas are prompting authorities to do more. The northeastern province of Heilongjiang will invest more than 300 billion yuan ($48 billion) over two years, the official Xinhua News Agency reported last week, after the region’s economy grew at the slowest pace in the country.

Data released last month also showed signs of stabilization. Gains in industrial production and retail sales accelerated in May, exports rose a more-than-estimated 7 percent from a year earlier, and new loans and money supply topped estimates.

Home Sales

At the same time, a decline in home sales and new construction persisted, and fixed-asset investment grew 17.2 percent in January-May from a year earlier, the weakest pace for that period since 2000, according to data compiled by Bloomberg.

One company undergoing expansion is Auhua Clean Energy Plc, a Chinese maker of solar-powered water heating systems. Auhua plans to almost double capacity at its factories in Shandong province, the company’s non-executive vice-chairman said in an interview.

— With assistance by Xiaoqing Pi

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