The HSBC Flash China Manufacturing Purchasing Managers’ Index (PMI) rose to a seven-month high of 50.8 for June. It was the first time the index was above the 50 level demarcating expansion from contraction since November. The components showed that production picked up by 2 points from a month earlier to 51.8 in June, and new orders increased 1.8 points to 51.8. The stock of finished goods fell by 1.8 points to 48, registering the lowest level since September 2011. Zhu Haibin, Chief Economist for China at JPMorgan, said the improvement in the flash HSBC PMI suggested the first-quarter slowdown in industrial activity had likely bottomed out. “The manufacturing sector appears to be on track to some decent recovery,” Zhu said. China has announced a number of policies to support growth and create jobs, such as allowing banks to keep a smaller amount of money as reserves and accelerating the construction of railways. There will be two separate sets of undercurrents affecting China’s growth in the second half, Zhu said. “On the positive side, the moderately above-trend growth in the global economy, led by the developed countries, should support China’s export sector,” Zhu said. “On the domestic front, infrastructure investment will likely receive further policy support.” However, the real estate sector remains a key downside risk for the macro-economic picture for the rest of the year, Zhu said, as reported by the Shanghai Daily.

On the other hand, the China Beige Book’s quarterly survey showed that besides manufacturing, other sectors such as transport, mining, retail and services all weakened. “What stands out is weakness – perhaps unprecedented weakness – in capital expenditure,” Leland R. Miller, President of New York-based CBB International said. “Since investment has been the engine of the economy for the past seven years, this weakness has sweeping effects on sectors, regions and gauges of firm performance. Overinvestment has been an addiction and withdrawal symptoms will not be pretty.”