China manufacturing activity at 18-month high

Worker at a factory in China A sustained growth in its manufacturing sector is seen as key to China's economy

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China's manufacturing activity grew at its fastest pace in 18 months in July, an initial survey by HSBC showed, the latest in a series of signs that the country's economy may be stabilising.

The bank's purchasing managers' index (PMI), a gauge of the sector's health, rose to 52 in July, from 50.7 in June.

A reading above 50 shows expansion. It is the second successive month in which HSBC's PMI has been above that level.

China has taken various steps in recent months to help boost its economy.

Qu Hongbin, chief economist for China at HSBC, said the latest data suggested "that the cumulative impact of mini-stimulus measures introduced earlier is still filtering through".

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

'Consolidate the recovery'

Earlier this month, China reported that its economy expanded by 7.5%, in the April-to-June quarter, from a year ago, up from 7.4% growth in the previous three months.

Start Quote

We expect policy makers to maintain their accommodative stance over the next few months to consolidate the recovery”

End Quote Qu Hongbin HSBC

Other data released in recent weeks has shown that factory output rose 9.2% in June, from a year earlier, while fixed asset investment jumped 17.3% in the first six months of the year.

Meanwhile, retail sales in June were 12.4% higher than a year ago, indicating that domestic consumption was picking up.

The slew of positive data has followed a series of measures in recent months by policymakers to help boost China's growth.

Beijing has announced plans to cut taxes on small firms and speed up the construction of railway lines across the country.

China's central bank has lowered 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 to make more cash available for lending.

It has said it will also encourage banks to lend more to exporters to boost shipments.

Analysts said the measures have started to help boost growth and Beijing was likely to continue to take steps to help support the recovery further.

"We expect policy makers to maintain their accommodative stance over the next few months to consolidate the recovery," said Mr Qu.

China has set a growth target of 7.5% for 2014.

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