China manufacturing activity growth picks up speed

A worker at a factory in China The manufacturing and export sectors have been key drivers of China's economic growth

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China's manufacturing activity picked up speed in September, an initial survey by HSBC has shown, adding to signs of a rebound in its economy.

The bank's Purchasing Managers' Index (PMI), a gauge of the sector's health, rose to 51.2 from 50.1 in August.

A reading above 50 shows an expansion. This is the second month in a row the HSBC reading has been above that level.

China has been trying to boost its economy after the recent slowdown in its growth rate.

It has taken various steps, including suspending value-added tax for small businesses, to try and boost domestic consumption.

Hongbin Qu, chief China economist at HSBC, said the measures had helped trigger a pick-up in demand and were likely to help boost manufacturing activity further in coming months.

"We expect a more sustained recovery as the further filtering-through of fine-tuning measures should lift domestic demand," he said.

Data released over the past few weeks showed that factory output, exports, retail sales and fixed asset investment all rose in August.

Domestic boost

Start Quote

This will create more favourable conditions to push forward reforms, which should in turn boost mid and long-term growth outlooks”

End Quote Hongbin Qu HSBC

China has relied heavily on its manufacturing and export sectors to drive its economic growth over the past decades.

However, a slowdown in demand from key markets such as the US and Europe in recent times, hurt those sectors and its overall growth.

China's growth rate has slowed for two quarters in a row. Its economy expanded at an annual rate of 7.5% in the April to June quarter, down from 7.7% in the previous three months.

Prompted by the slowdown in external demand, and amid calls from various economists and institutions to do so, China has been trying to boost domestic demand to help offset the decline in foreign sales and rebalance its economy.

Last month, it suspended the value-added tax and turnover tax for small businesses with monthly sales of less than 20,000 yuan ($3,257; £2,125).

The move is expected to benefit more than six million small companies and boost the employment and income for millions of people.

Beijing has also said that it will completely open China's railway construction market to private players to ensure that the country can develop the sector further.

Mr Qu of HSBC said that the latest data, which showed the initial HSBC PMI reading hitting a six-month high, was likely to see China introduce further steps to help boost domestic consumption.

"This will create more favourable conditions to push forward reforms, which should in turn boost mid and long-term growth outlooks."

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