Production index shows China growth stabilization

China’s manufacturing expanded at the fastest pace in five months, in a sign the government’s measures to counter an economic slowdown are gaining traction.

The Purchasing Managers’ Index rose to 50.8 in May, the National Bureau of Statistics and China Federation of Logistics and Purchasing said yesterday in Beijing. April’s reading was 50.4, with numbers above 50 indicating expansion.

The Communist Party has stepped up the pace of stimulus measures, including faster spending from government budgets and increased railway investment, to help meet an official growth target of about 7.5 percent this year. Authorities are contending with a property-market slump that threatens the economy while they try to sustain efforts to limit shadow banking, pollution and corruption.

“After a disappointing start this year, growth is being stabilized thanks to the government’s mini-stimulus,” Lu Ting, head of Greater China economics at Bank of America in Hong Kong, said in an e-mail. At the same time, the “below-51 PMI is still weak, and there are still strong headwinds due to the downturn of the property sector and the anti-corruption campaign,” he said.

Estimates from 30 analysts for today’s figure ranged from 50.1 to 51.5.

A separate manufacturing PMI from HSBC Holdings and Markit Economics rose to a five-month high of 49.7 in May, based on a preliminary reading released May 22. The final number is due June 3.

The government’s PMI is based on survey responses from purchasing executives at 3,000 companies, while the HSBC-Markit report comes from more than 420 enterprises.

The State Council, or cabinet, on Friday said it would cut the reserve-requirement ratio for lenders that have extended a certain amount of loans to rural borrowers and smaller companies. The People’s Bank of China will set up a re-lending facility for smaller companies and has set this year’s quota at 50 billion yuan ($8 billion), state television reported yesterday.

Most sub-indexes in the official PMI rose in May. Output increased to a four-month high and the measure of new orders was at the highest since November. The employment gauge fell to 48.2 from 48.3, continuing to signal contraction.

China’s stimulus showed signs of helping companies other than the biggest ones, with a PMI for medium-sized enterprises rising to 51.4 from 50.3 in today’s data.

Bloomberg