China manufacturing 'picking up', HSBC survey indicates

Workers at a factory in China
Image caption Manufacturing and export sectors have been key drivers of China's economic growth

China's manufacturing activity slowed less quickly in July, than in the previous month, a preliminary survey by HSBC has showed.

The HSBC Purchasing Manager's Index (PMI) rose to 49.5 in July, a five-month high and up from 48.2 in June.

The data comes amid fears of a sharp slowdown in China's economy.

China's economy, the world's second-largest, expanded at an annual rate of 7.6% in the second quarter, the slowest pace of growth in three years.

Some analysts said the data indicated that recent measures implemented by the government to boost growth, including lowering interest rates, had started to take effect and that the economy was likely to rebound in the coming months.

"This suggests the effect of policy easing is being transmitted to the economy and reinforces our view that growth has bottomed in second quarter at 7.6% and will rebound in the third quarter to 8.1%," said Zhang Zhiwei, chief economist at Nomura.

Not fully reversed

The PMI is a key indicator of activity in the manufacturing sector. A reading above 50 shows expansion, while one below that, indicates contraction.

The HSBC PMI reading has remained below the threshold 50 mark for the past nine months.

China's manufacturing sector has been hurt by falling demand from key markets such as the US and eurozone.

And as those regions continue to grapple with economic issues and slower growth, there have been concerns that China's manufacturing may slow further.

Analysts said that even though the latest data indicated that the pace of contraction had slowed, the sector had yet to fully recover.

"China's manufacturing slowdown momentum has yet to be fully reversed," Qu Hongbin, Co-head of Asian Economics Research at HSBC said in a statement.

"The current PMI reading remains below break-even level."

Policy easing?

As demand from its key overseas markets has declined and the pace of its economic growth slowed, China's policymakers have taken steps to ease monetary policy in a bid to boost domestic demand and sustain growth.

China's central bank has cut its key interest rates twice in the past two months.

It has also lowered the amount of cash banks must hold in reserve, thrice in the past few months, in a bid to boost lending in the country.

However, analysts said that Beijing needed to introduce fresh measures to spur growth.

"This calls for more easing efforts to support growth and jobs," said HSBC's Qu Hongbin.

"We believe the fast falling inflation allows Beijing to do so and a more meaningful improvement of growth is expected in the coming months when these measures fully filter through."

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