China Manufacturing Recovers on Stimulus: Will It Last?by
China’s recent stimulus measures have paid off and are boosting the world’s second-largest economy, now likely to reach this year’s GDP growth goal of about 7.5 percent. That’s the consensus after Thursday’s release of figures showing manufacturing at its strongest level in 18 months.
The July HSBC/Markit flash PMI (Purchasing Managers’ Index) came in at 52.0, up from 50.7 in June and above the 51.0 that analysts surveyed by Bloomberg News had predicted. (Any reading above 50 signals an expansion.) “Economic activity continues to improve in July, suggesting that the cumulative impact of mini-stimulus measures introduced earlier is still filtering through,” Qu Hongbin, chief economist for China at HSBC, said in a statement released today.
The preliminary, or flash, index is based on 85 percent to 90 percent of responses to surveys sent to purchasing managers at more than 420 companies; the final reading will be released on Aug. 1.
Subindexes for new orders and output were also encouraging, showing improvement in both domestic and export demand. Only employment continued to contract in July, albeit the smallest drop in nine months. “Employment, in contrast, continued to fall as firms sought to cut costs and boost productivity,” Chris Williamson, chief economist at Markit Economic Research, said in a July 24 note (PDF).
Despite the good news, it’s unclear how long it will last. China’s swooning real estate market plus soaring local government and corporate debt are likely to undermine economic growth. By the end of June, China’s total debt had exceeded 250 percent of gross domestic product, and the economy “is still leveraging up,” wrote Stephen Green, chief China economist at Standard Chartered, in a July 21 note.