China's manufacturing activity rose in May following government economic stimulus measures

Out-Law News | 04 Jun 2014 | 12:10 pm | 2 min. read

China's official purchasing managers’ index rose to 50.8 in May representing the highest reading this year and a rise from 50.4 in April, according to the Financial Times.

The rise in the index, which is regarded as an indicator of the health of large industrial companies, follows a number of government measures designed to stimulate China's economy.

The continued improvement in May’s PMI shows that signs of economic recovery are becoming more obvious,” said Zhang Liqun, a researcher at the China Federation of Logistics and Purchasing, which publishes the data along with the National Bureau of Statistics.

An alternative index published by HSBC bank, shows an improvement of manufacturing sentiment last month among smaller private companies, with a preliminary reading of 49.7 in May, compared with 48.1 in April, the newspaper said. This was the highest reading so far this year.

The figures follow a number of recent reports by Chinese officials which indicate that China's growth is slowing down.

Official statistics found that China's gross domestic product (GDP) grew 7.4% in the first quarter of 2014, compared to the same period last year, and slower than the government's target of 7.5% growth for this year.

Last month officials warned that China could miss its trade growth target for a third consecutive year in 2014 due to rising labour costs and weakening global demand. Zhang Ji, director general of the foreign trade department at China's ministry of commerce said that a period of high growth for China has ended as increased costs reduce its competitiveness and as Europe and the US try to boost their manufacturing and export sectors, according to Reuters.

Ren Zeping, the deputy director of the macroeconomic research department at the Development Research Centre of the State Council (DRCSC) said that China's economy could slow to around 5% by 2017, Reuters also reported. Ren said that China's economy is shifting gear from high speed growth to medium-speed expansion, the news agency said. He attributed a steady deceleration in China's economy to inadequate domestic demand, which off-set a recovery in world demand following the global financial crisis of 2008, the news agency said.

Officials are concerned about a number of factors in the Chinese economy, said Reuters, including China’s debt load, relatively weak global demand, and overcapacity in some sectors, including the steel industry. Beijing is also concerned about a slow down in the Chinese real estate market, which has been the key driver of the economy over the past decade said the news agency. Average prices for new homes fell in May from the previous month, representing the first contraction in nearly two years, according to the China Real Estate Index System, said Reuters.

The government has introduced a number of stimulus measures in recent months. 

Beijing recently ordered commercial banks to offer more mortgage loans to home buyers. Last week China’s cabinet also said it would reduce the amount of deposits banks have to keep on reserve at the central bank in order to support smaller companies and agricultural businesses, Reuters said. In April the government announced that construction companies will be eligible to receive tax reductions if they employ people who have been out of work for more than one year, in a move which extended existing tax reductions for selected sectors to all companies across China, the state press agency Xinhua reported.