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Business

Chinese manufacturers cautiously optimistic

Chinese manufacturers are cautiously optimistic about future growth, HSBC's PMI for June shows. Yet the world's second largest economy still struggles amid a general shift towards strengthening domestic demand.

Chinese factory output came in at 49.6 in June, marking a 0.4-point rise compared with May, according to HSBC's Purchasing Managers Index (PMI) out Tuesday. While this reflected an upward trend in manufacturing and signaled cautious optimism, overall production was still weak and economic growth remained mute.

Annabel Fiddes, an economist at Markit which conducted the study for HSBC, said that manufacturers were continuing to cut their staff, resulting in the sharpest reduction in six years.

"This suggests that companies have relatively muted growth expectations as demand conditions both at home and abroad remain relatively subdued," she added.

HSBC's PMI is a survey gauging the volume of new orders expected by Chinese factory purchasing managers. It also asseses potential output and employment prospects in the sector. The monthly poll is based on a 100-point scale, with numbers above 50 indicating expansion.

New orders and exports on the rise

According to the PMI, expected new orders returned to positive territory at 50.3 and new export orders fell at a much slower pace.

"The pick-up in new orders was driven by a strong rise in the new export orders subcomponent, suggesting that foreign demand may finally be turning a corner, " analysts from Capital Economics wrote. They also said that this may provide a boost to the Chinese economy.

Nevertheless, overall factory activity has been stuck in a rut for the past four months, with manufacturers facing weak demand from domestic and foreign markets.

A way out?

In an effort to stimulate production, China cut interest rates for the third time in six months in May. These moves come amid and in response to the country's weakest economic year for a quarter of a century, but haven't been overly effective so far.

In the long term, China's leaders believe that the key to success lies in strengthening domestic consumption and ending the economy's

over-reliance on trade and industrial investment

.

(br/hg (AP, Reuters)

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