Best figures in 16 months suggest overall economic situation improving

China's manufacturing industry picked up in August to its highest level since May 2012, suggesting a steady improvement of the overall economic condition, official statistics showed on Sunday.

The manufacturing Purchasing Managers' Index, which reflects factory production activities, jumped to 51 in August from 50.3 in July, indicating the fastest expansion of the industry in 16 months, according to the National Bureau of Statistics and the China Federation of Logistics and Purchasing.

It was driven by an obvious expansion of new orders, whose reading reached 52.4 in August compared with 50.6 in July, the highest reading in more than a year.

New export orders rose to 50.2, up by 1.2 points, the first time since April that it reported higher than 50, the threshold separating expansion from contraction.

"The PMI figure suggests the economy is further stabilizing," said Zhang Liqun, an analyst with the Development Research Center of the State Council. "It showed a rebound in both domestic and external demand, and the upstream product prices are rising correspondingly."

Zhang said the rebound signaled positive market expectations and the stronger ability of enterprises to adapt to economic restructuring.

As all the sub-indices of the PMI have seen steady growth during the past month — the first time this year — evidence is strong enough to eliminate worries over an economic slowdown, analysts said.

On Sunday, JPMorgan Chase & Co announced a revised forecast of the whole-year GDP growth to 7.6 percent from 7.4 percent. It predicted a rise of 7.6 percent in the third quarter and 7.5 percent in the fourth compared with a year earlier.

Earlier last week, Deutsche Bank AG also upgraded its prediction for third-quarter GDP growth to 7.7 percent from 7.5 percent, while that for the fourth quarter was raised to 7.8 percent from 7.7 percent.

China's growth slowed to 7.5 percent in the second quarter from 7.7 in the first, when the central government focused on rebalancing the economic structure while solving the problem of excess industrial production capacity.

Yang Xiaolong, chairman of Zhejiang Gete Clothes in Wenzhou, Zhejiang province, said there had been a moderate rise in overseas orders since July.

"I hope the export volume may rebound for the next year as the ongoing recovery of the United States and European countries is likely to bring larger orders for China," said Yang.

However, Yang expected the recovery to be slow, as the year's export peak season has passed.

Zhu Haibin, chief economist in China with JPMorgan, said that growth momentum in the global economy is expected to pick up in the second half, based on the accelerated rebound in the US, Germany and France in the second quarter.

In addition, the government's policy fine-tuning since July, as well as the stable growth of the infrastructure and real estate sectors, will help stabilize growth and improve market sentiment.

The fast growth in credit earlier this year will also have an effect in the second half, he said.

Liu Ligang, chief economist in China with ANZ Group, said, "China's overall economic growth shows a positive situation, along with the accelerated implementation of fiscal plans".

"For this year, about 58 percent of the fiscal budget will be used in the second half, and the government has planned some extra investment spending that can provide about 200 billion yuan, or 0.8 percent of the whole-year GDP," Liu said.

Another sign of stable growth is that the financial market has shown moderate fluctuation, although liquidity remains tight, he added.

According to the statistics bureau, the PMI in August for large enterprises increased to 51.8 from 50.8 in July, staying above 50 for the 12th consecutive month. But that for small companies fell to 49.2 from 49.4.

Zhao Qinghe, a senior economist with the statistics bureau, said the figures showed that small manufacturing businesses still face challenges, which needs more supportive government policies.

HSBC Holdings released its preliminary reading of the August PMI earlier, showing a four-month high of 50.1, up from 47.7 in July, also the first expansion in the sector since May. The bank will report the final PMI on Monday.