China manufacturing activity 'picks up'

Workers at a factory in China Manufacturing and export sectors are key drivers of China's economic growth

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China's manufacturing activity picked up pace in June, an initial survey by HSBC showed, a sign that its economy is benefiting from recent stimulus moves.

The bank's purchasing managers' index (PMI), a gauge of the sector's health, rose to 50.8 in June, from 49.4 in May.

A reading above 50 shows expansion. It is the first time since December that HSBC's PMI has been above that level.

China has taken various steps in recent months, including cutting taxes for small firms, to help boost its economy.

Analysts said the latest HSBC PMI reading - which measures activity in smaller factories - showed the measures were starting to have an impact on growth.

"This month's improvement is consistent with data suggesting that the authorities' mini-stimulus are filtering through to the real economy," said Qu Hongbin, chief China economist at HSBC.

Earlier this month, China reported that its official PMI reading - which measures activity in big factories - rose to a five-month high of 50.8 in May.

China's official PMI for June will be released early next month.

Start Quote

We expect policymakers to continue their current path of accommodative policy stance until the recovery is sustained”

End Quote Qu Hongbin HSBC
Policy easing

After years of robust expansion, China has seen its growth rate slow in recent years, in part due to a slowdown in demand for its exports from key markets.

China's economy expanded by 7.4% in the January-to-March period, from a year ago, down from 7.7% growth in the final quarter of last year.

As a result, China has taken steps to try and sustain its high growth rate and also to boost domestic demand and rebalance its economy.

In April, the government said it will cut taxes on small firms and speed up the construction of railway lines across the country.

Earlier this month, China's central bank said it will cut the reserve requirement ratio (RRR) - the amount of cash banks needs to keep in reserve - for banks engaged in lending to agriculture-related businesses and small companies.

China's central bank, the People's Bank of China, said it would also encourage banks to lend more to exporters to boost shipments.

The government also announced plans to build railways, roads and airports along the Yangtze River - which connects China's less developed inland provinces to Shanghai.

Analysts said that Beijing was likely to continue to take steps to help boost its economic growth.

"We expect policymakers to continue their current path of accommodative policy stance until the recovery is sustained," said Mr Qu.

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