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Manufacturing activity expands for 5th month

Manufacturing activity on the mainland expanded for a fifth month in July, adding strength to the nation's nascent economic recovery.

The purchasing managers' index compiled by the China Federation of Logistics and Purchasing on behalf of the National Bureau of Statistics edged 0.1 point higher to 53.3 last month from June, driven by the infrastructure-led four trillion yuan (HK$4.56 trillion) economic stimulus plan and marked growth in new export orders.

Last month's reading, which economists said bucked a historical decline in July, cemented the prospect of a solid recovery.

'Sentiment remains soundly positive, industrial activity should continue to expand in the coming months,' said Jing Ulrich, the managing director and chairman of JP Morgan's China equities. 'Continued policy support for key sectors such as cars and property should lead to more industrial demand.'

She added that the prospect of the manufacturing sector would be underpinned by the central government's priority in supporting stable and relatively fast economic growth through a loose monetary policy.

The July PMI marked the fifth month of expansion, which is defined by any reading above 50. A reading below 50 means contraction.

Brokerage Goldman Sachs pointed out that 'a clear upward trend' was formed on new export orders, which climbed further to 52.1 last month from 51.4 in June after hitting its lowest ebb in November last year.

It forecast that other macroeconomic data, such as industrial output due in a week, would show an improvement last month.

According to the PMI survey, 10 out of 20 industries showed growth in new export orders, with oil refining and coking the best performers.

Employment improved, too, led by the metal product industry, while most of the 20 industries polled had a higher output last month.

Zhang Liqun, a researcher at the State Council Development Research Centre, said last month's PMI was consistent with the mainland's major macroeconomic indicators, which showed a gradual improvement in the first half of this year.

'As domestic demand accelerates, the economic recovery will keep on its positive trend,' he said.

Despite the market's optimism, Vice-Premier Li Keqiang said over the weekend that the foundation of the country's economic recovery was 'not solid enough'.

Mr Li said the sharp contraction in overseas demand exacerbated the prolonged situation of excess production capacity and battered exports. He said the global economy would take a longer time to recover despite recent strength in the stock and capital markets.

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