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China industry on more solid ground: surveys

(Agencies)
Updated: 2009-07-01 20:10

BEIJING: China's manufacturing sector extended a steady if unspectacular recovery in June, surveys released on Wednesday showed, adding to evidence across Asia that the regional economy is finally pulling out of a deep dive.

"I believe the current recovery has been confirmed and can be sustained," Fan Gang, an economist who advises the central bank, told a financial forum.

Related readings:  VP urges industry to 'put quality first' to support economy  Discrepancy in May economic data reflects industry restructuring  China's steel industry may be in red this year  China's auto industry races toward spring  HK, Shenzhen promote financial industry in NY

Fan predicted China's exports will be growing again, from a low base, by the end of the year.

The official purchasing managers' index (PMI) for June rose to 53.2 from 53.1 in May, consolidating for the fourth month in a row above the watershed mark of 50.

A companion index compiled for brokerage CLSA improved to 51.8 from 51.2, its third month in positive territory, as output grew at the strongest rate in a year and overseas orders rose for the first time in 11 months.

A reading over 50 indicates an expansion in manufacturing sector, while one below 50 suggests contraction.

"We take it as signalling that the green shoots of economic recovery have taken root and are likely to blossom in the second half of 2009," Steven Zhang and Qing Wang at Morgan Stanley said in a note to clients.

Beijing responded to last autumn's slump in global demand with a massive 4 trillion yuan ($585 billion) stimulus package, loose credit policy and an array of tax breaks.

Alongside improvements in other timely data such as power consumption, tax revenues, industrial profits and cars sales, Wednesday's reports indicate that the pump-priming is working.

Glimmers of Hope

China accounts for only 7 percent of global output at market rates, so it cannot be expected to haul the rest of the world out of recession. But global investors have responded positively to the improved news flow recently out of Beijing.

Japanese construction makers such as Komatsu and Hitachi Construction, which often rise when there are expectations of orders to be won in China, gained 1.8 percent and 1.6 percent, respectively, on Wednesday. The surveys also helped to underpin a rebound in oil prices

Shanghai's main stock index jumped 1.7 percent to a 13-month high. Shares across the region, by contrast, were little changed as investors took the view that a turnaround to global recovery was likely to be a slow grind.

The recovery in export business revealed in the Chinese surveys was partially reflected in South Korea, where exports fell by 11.3 percent in June from a year earlier, the slowest decline since October.

"The worst is apparently behind us, and the economy is gearing for a faster-than-expected recovery," said Song Jae-Hyok, an economist at SK Securities.

A survey of Indian manufacturers was also broadly positive, with domestic demand boosting activity to an eight-month high.

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