Growth push lifts hopes for rebound in China

While the mainland is expected to meet its annual GDP target, the leadership is criticised for moving too slowly in pushing reforms

PUBLISHED : Wednesday, 02 July, 2014, 1:44am
UPDATED : Wednesday, 02 July, 2014, 1:59am

Market confidence for a rebound on the mainland has strengthened due to Beijing's easing policies aimed at facilitating a quick turnaround in growth, but the leadership is being criticised by some analysts for moving too slowly in pushing reforms.

The official purchasing managers' index, which tracks mostly large industrial companies, expanded for a fourth month to 51 last month from 50.8 in May, the National Bureau of Statistics said yesterday.

The HSBC PMI, with a large share of private enterprises in its sample, rose to 50.7 from 49.4, with new orders growing at their quickest pace since March last year.

The reading of 50 is the cut-off point for expansion and contraction of manufacturing activity.

After the release of those numbers, many analysts are more convinced that the mainland's gross domestic product growth will at least stabilise at the 7.4 per cent level seen in the first quarter, with more pro-growth policies expected later to defend the annual growth target of about 7.5 per cent.

"This is the first time both PMIs have stayed above the expansionary level since December," said Liu Ligang, the chief economist for Greater China at ANZ Bank. "The rise of both PMIs suggests the growth momentum has been picking up due to the recent pro-growth policies, including increasing infrastructure investment and accelerating the budgeted fiscal spending."

The pickup in PMIs was in line with data in May that showed acceleration in infrastructure building after Premier Li Keqiang pushed local authorities to speed up investment.

The weakened property market remains the biggest concern though. More signs show that Beijing is quietly permitting some local authorities to ease resident property purchase limits. Cities from Hohhot to Shenyang have cancelled certain curbs recently to stem a slide in prices.

In another step to allow banks to have more loanable funds, the China Banking Regulatory Commission this week eased rules on their loan-deposit ratio, including giving them more room to issue negotiable certificates of deposit. Funds released through this new channel will give stronger support to the economy, analysts say.

"The government still has a lot of leeway to provide support if needed," Capital Economics' analysts said in a research note.

For example, they said, Beijing had room to cut the reserve requirement ratio, still very high at 20 per cent for large banks, and further relax the property purchase restrictions.

While few doubt the mainland's capability to defend its annual targets, including the goal to create 10 million jobs, many economists expressed concerns about the ambiguous reform agenda, which lacks details.

Citigroup's China research head Shen Minggao said visibility on reform remained low. He called on Beijing to lower the GDP target to 7 per cent next year in an attempt to create more flexibility for reforming the economic system.