PMI proves pos­i­tive

China Daily (Hong Kong) - - COMMENT -

WHILE JULY’S DATA SUG­GESTED THAT THE CHI­nese econ­omy could be bot­tom­ing out, the strong rise in the flash HSBC Pur­chas­ing Man­agers’ In­dex, re­leased on Thurs­day, tes­ti­fies that it is re­cov­er­ing.

The pre­lim­i­nary HSBC read­ing for Au­gust hit a four-month high of 50.1, up from a fi­nal read­ing of 47.7 in July. The fi­nal HSBC PMI read­ing had been be­low 50, sig­nal­ing con­trac­tion, for three con­sec­u­tive months, in stark con­trast with the above-50 of­fi­cial PMI read­ing. The fact that both in­dexes are now above 50 agrees with other signs that the econ­omy is shak­ing off its ear­lier slug­gish­ness.

Seen from in­di­ca­tors re­leased in the past weeks, such as the bet­ter-than-ex­pected in­dus­trial pro­duc­tion, sta­ble re­tail sales and re­cov­er­ing trade data for July, the Chi­nese econ­omy has shown some signs of sta­bi­liza­tion. The ris­ing flash HSBC read­ing fur­ther re­in­forces that trend.

It also shows that China’s re­cent pro-growth poli­cies, such as in­creased in­fra­struc­ture in­vest­ment and tem­po­rary elim­i­na­tion of sales and value-added taxes for small en­ter­prises, are start­ing to work.

As the ef­fect of those poli­cies un­folds, the econ­omy could fur­ther pick up in the com­ing months, help­ing the coun­try reach its year-on-year GDP growth tar­get of 7.5 per­cent for this year.

Seen from the sub-in­dexes of the HSBC in­dex, the pick-up in the new or­ders is a boost to con­fi­dence be­cause it shows the cor­po­rate sec­tor is ben­e­fit­ing from the eco­nomic re­cov­ery, which will in turn fur­ther con­trib­ute to the con­ti­nu­ity of the up­ward eco­nomic trend.

The sub-in­dex mea­sur­ing new ex­port or­ders, how­ever, re­mains low, in­di­cat­ing ex­ter­nal de­mand is still weak.

The global econ­omy con­tin­ues to wal­low in the mire, with Euro­pean economies still far from re­solv­ing their debt crises while the emerg­ing-mar­ket economies, par­tic­u­larly In­dia and In­done­sia, are hav­ing to cope with the chal­lenges re­sult­ing from the United States’ planned withdrawal from its bond-buy­ing stim­u­lus mea­sures.

Al­though the Fed­eral Open Mar­ket Com­mit­tee meet­ing at the end of July of­fered few clues as to when the Fed will wind down its $85 bil­lion a month stim­u­lus pro­gram, it made clear it is only a mat­ter of when, not if.

This in­di­cates that the US’ eco­nomic prospects could fur­ther im­prove on the back of the drop­ping un­em­ploy­ment rate and stronger-than-ex­pected home and re­tail sales, which may pro­vide a mild boost to Chi­nese ex­porters.

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