HONG KONG — A manufacturing index published by the Chinese authorities on Thursday provided an unexpectedly solid reading for July but did little to dispel the picture of an economy that has left the days of double-digit growth well behind it.
The reading, published by the National Bureau of Statistics, edged up slightly, to 50.3 from 50.1 in June, indicating that recent small-scale economic support measures announced by the authorities in Beijing may be having some effect on demand.
The slight increase confounded analyst expectations that the index would slip below the 50-point mark that separates expansion from contraction.
Underlining the lingering malaise within the world’s second-largest economy, however, a separate manufacturing activity gauge published by the British bank HSBC came in at an eleven-month low of 47.7. The figure, which was unchanged from the initial reading published last month, highlighted the tough domestic and international demand that many Chinese companies are confronted with.
“With weak demand from both domestic and external markets, the cooling manufacturing sector continued to weigh on employment,” said Qu Hongbin, chief China economist at HSBC, in a statement accompanying the release.
On the upside, he noted, the string of recent weak data has prompted Beijing to introduce more targeted support measures, which “should boost confidence and reduce downside risks to growth.”
The leadership that took the helm in Beijing in March has been insisting that the slowdown is not only desirable — as part of their efforts to rein in excessive lending and bring about more balanced growth — but also stable and sufficient to meet its target of 7.5 percent this year.
But it has also prescribed a steady stream of small-scale, targeted support measures in a bid to ensure that growth does not cool too rapidly.
These have included tax cuts for small and micro enterprises and measures aimed at speeding up railway construction in inland and poor areas. In a bid to raise the economy’s overall efficiency the authorities have also issued instructions to more than 1,400 companies in 19 industries to cut excess production capacity this year.
Meanwhile, the central bank on July 19 said it would no longer set a minimum interest rate for corporate loans – a symbolically important first step toward wider interest rate liberalization.
“All of these things amount to a small-scale stimulus,” said Dariusz Kowalczyk, a senior economist and strategist at Crédit Agricole in Hong Kong. These steps, combined with more fine-tuning moves that are likely to follow in the next few months, are likely to lift economic growth to just above the official 7.5 percent growth target this year, Mr. Kowalczyk said.
“The new leadership cannot afford politically to miss that target during their first year,” he said, adding that he expected moves aimed at spurring consumer demand, such as subsidies for big-ticket items or consumption-tax cuts, as well as a modest depreciation in the renminbi in the coming months.
Article source: http://www.nytimes.com/2013/08/02/business/global/chinese-manufacturing-unexpectedly-strengthens.html?partner=rss&emc=rss