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 The official Purchasing Managers' Index (PMI) issued by the
government climbed to a 27-month high of 51.7 in July, beating
forecasts for 51.4.
A separate PMI published by HSBC/Markit also rose to 51.7, its best
performance in 18 months.
A reading above 50 indicates an expansion in activity on a monthly
basis, and below that a contraction.
Analysts welcomed the data as a sign that the world's second-biggest
economy is enjoying a revival after a rocky spell prompted
authorities to launch a volley of support measures, including
increasing bank lending to spur growth.
Now that looser monetary policy is having its intended effect, some
analysts questioned the need for more economic stimulus in China, at
least in the near term.
"There is no reason in China to be concerned about growth right
now," said Julian Evans-Pritchard, an economist at Capital
Economics. "It's a good time for policymakers to step back from
stimulus and concentrate on reforms."
Both surveys showed that the rebound in manufacturing was led by
firmer domestic demand as new orders -- a proxy for domestic and
overseas demand -- rose more sharply than new export orders.
The official PMI showed new orders jumped to 53.6 from June's 52.8,
the best reading since May 2012. The HSBC/Markit PMI also showed the
new orders sub-index jumping nearly two points to 53.3, a level last
seen in March 2013.
Worried by a slowdown in the economy in the first quarter, China
began easing policy in April by cutting taxes, hastening investment,
and lowering the reserve requirement for some banks.
Bank lending, which is controlled by the government, is expected
this year to hit levels unseen since the 2008/09 global financial
crisis.
All of this should help China sustain its economic recovery, said Qu
Hongbin, an analyst at HSBC.
"We expect the cumulative impact of these measures to filter through
in the next few months and help consolidate the recovery,” he said.
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"LIKELY TO MEET GROWTH TARGET"
China's economy has had a rocky spell this year. Growth cooled to an
18-month low of 7.4 percent in the first quarter, and it was only
after the flurry of policy support that activity edged back up to
7.5 percent between April and June, in line with the government's
2014 GDP expansion target. And what started as a slowdown largely
driven by unsteady foreign and domestic demand and investment has
broadened to include a housing downturn, which in recent months has
become the biggest threat to the economy. Average home prices fell
in May for the first time in two years, while growth in land prices
also slowed for the first time in two years in the second quarter.
Although a retreat in the once-heated housing market is a welcome
for Chinese since home prices are still near record highs, the
cooldown is painful for policymakers since the sector accounts for
roughly 15 percent of China's economic growth.
Some economists say the economic recovery still hinges on the
magnitude of China's pro-growth steps, and whether the government
can successfully curb the risks stemming from a cooling property
sector. Indeed, in a sign that the recovery may still be patchy, a
sub-index for employment in the HSBC/Markit PMI showed employment
contracted for the ninth consecutive month in July as some companies
laid off workers.
Premier Li Keqiang also said on Thursday that China has to work
harder on reforming its economy in the northeastern region, where
growth has lagged after regional governments cut state investment to
re-orient the Chinese growth engine. [ID:nL4N0Q666Y]
Following three decades of double-digit economic growth, China wants
to re-make its maturing economy so that it relies not on investment
and exports, but on domestic consumption for sustainable growth.
"Future policy depends on whether the cost of funding in China would
continue to fall," said Zhou Hao, an economist at ANZ Bank in
Shanghai.
"But it's clear that China's economic growth momentum has increased
and it's very likely that this year's 7.5 percent growth target will
be met."
(Editing by Kim Coghill)
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