China factory activity hits multi-month highs, economy steadying

Mon Jun 30, 2014 11:33pm EDT
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By Xiaoyi Shao and Kevin Yao

BEIJING (Reuters) - China's factory activity hit multi-month highs in June, official and private surveys showed, reinforcing signs that the world's second-largest economy is steadying as the government steps up policy support.

Analysts believe the worst for the economy is over as recent "mini-stimulus" measures kick in, but said Beijing may have to announce more stimulus measures in coming months to offset the increasing drag from the cooling property sector.

The official Purchasing Managers' Index (PMI), published by the National Bureau of Statistics, hit a six-month high of 51 in June, in line with market expectations and up from May's 50.8.

The final HSBC/Markit purchasing managers' index (PMI) for June rose to 50.7 from May's 49.4, surging past the 50-point level that separates growth in activity from contraction for the first time since December.

"The economy has turned the corner, but it will take time for the recovery to become more broad-based. Infrastructure investment needs to pick up more strongly in the coming months to lift demand," said Julia R Wang, an economist at HSBC in Hong Kong.

“Meanwhile, the slowdown in the property market continues to pose downside risks to growth in the second half of the year. We expect both fiscal and monetary policies to remain accommodative until the recovery is sustained."

The government has unveiled a series of modest stimulus measures in recent months to give a lift to economic growth, which dipped to a 18-month low in the first quarter. Such measures have included targeted reserve requirement cuts for some banks to encourage more lending, quicker fiscal disbursements and hastening construction of railways and public housing projects.

On Monday, China's banking regulator announced changes in the way it calculate banks’ loan-to-deposit ratio (LDR) to help channel more credit into the real economy.   Continued...

An employee works at a production line inside a Geely factory in Ningbo, Zhejiang province May 15, 2014. REUTERS/Stringer