Still, many analysts expect the government may need to roll out
further steps in coming months to offset the risks from a cooling
housing market and persistent export weakness, after China's premier
vowed last week that the economy would not suffer a hard landing.
The HSBC/Markit Flash China Manufacturing Purchasing Managers' Index
rose more than expected to 50.8 in June from May's final reading of
49.4, beating a Reuters poll forecast of 49.7 and creeping above the
50-point level that separates growth in activity from contraction.
It was the first time since December that the PMI was in growth
territory, and the highest reading since November, when it was also
The upbeat report reinforced market expectations that the world's
second-largest economy is powering through its recent soft patch,
even if the recovery may be patchy.
"This month's improvement is consistent with data suggesting that
the authorities' mini-stimulus is filtering through to the real
economy," said Qu Hongbin, chief economist for China at HSBC,
referring to a series of measures announced by the government in
recent months to spur activity. "We expect policymakers to continue
their current path of accommodative policy stance until the recovery
is sustained,” he added.
The preliminary factory reading for June indicates sequential growth
could pick up to 1.8 percent in the second quarter from 1.4 percent
in the first, Ting Lu, an economist at Bank of America-Merrill
Lynch, said in a note to clients.
"We expect Beijing to continue rolling out more measures to
stabilize growth," Lu added.
The sub-index for new orders, a proxy to measure domestic and
foreign demand, rose to 51.8, the fastest pace in 15 months.
Much of the increase appeared due to stronger domestic consumption,
as growth in new export orders slowed sharply.
Still, the survey showed an across-the-board improvement in the vast
factory sector, with most of the 11 sub-indices, ranging from output
to new orders and stocks of purchases, accelerating from previous
The flash PMI data is the earliest indicator in a month to help
gauge the economic momentum and thus is closely watched by
Asian stock markets and the Australian dollar firmed on the news.
Beijing has unveiled a series of modest policy measures in recent
months to give a lift to economic growth, which dipped to an
18-month low in the first quarter.
Such measures include targeted reserve requirement cuts for some
banks to encourage more lending, quicker fiscal spending and
hastening construction of railways and public housing projects.
[to top of second column]
But the recovery has been patchy, and a strong rebound is seen as
Exports remain uneven as recoveries in the United States and the
European Union do not appear to be giving their usual robust boost
to export-reliant Asian economies.
Investment growth also continues to falter, in particular in the
real estate sector. Average new home prices in China fell for the
first time in two years in May, while new construction slumped by
nearly a fifth, adding to the drag on the economy.
Moreover, the preliminary PMI survey's sub-index for employment
pointed to jobs still being shed, though the pace of contraction
eased from May.
China has set an annual target for the economy to grow about 7.5
percent in 2014 and a recent Reuters poll found that economists
expected growth of 7.3 percent for this year, which could be the
weakest showing in 24 years.
Chinese leaders have ruled out the possibility of any massive
stimulus to pump prim the economy as they tolerate a slower growth
rate while pushing ahead with structural reforms.
Premier Li Keqiang said last week that China's economy would
continue to grow at a medium to high pace in the long term without
With no big stimulus seen in the offing, economists expected Beijing
to launch incremental fine-tuning steps, especially in the property
sector, to encourage steadier economic growth.
"Besides quicker roll-out of 'already in the pipe line measures' and
greater fiscal support, the government may have to offer more
explicit housing demand support," Tao Wang, an economist at UBS,
said in a note to clients.
(Reporting by Aileen Wang; Editing by Kim Coghill)
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