Economy on path of steady growth

Hope is on the rise that China's economy is growing steadily following a more encouraging performance in the manufacturing and service sectors in May.

The final reading of the HSBC/Markit Purchasing Managers Index for Chinese manufacturing was 49.4, up from April's 48.1 and the highest since February, according to figures released on Tuesday.

China's non-manufacturing PMI was 55.5, the government reported, 0.7 points higher than April, even though real estate remained sluggish nationwide.

The trend is expected to last into the second and third quarters, said Tao Wang, an economist at UBS, as "exports are picking up and the effect of the government's mini-stimulus is being gradually felt".

The recovery came as US manufacturing activity expanded in May. Financial data firm Markit said its US manufacturing PMI rose to 56.4 in May, from 55.4 in April.

Meanwhile, the Eurozone PMI fell to a 6-month low of 52.2 in May, Markit reported on Monday.

The HSBC/Markit manufacturing PMI dovetailed with an official May PMI released on Sunday, which hit a five-month high of 50.8, up from April's 50.4, according to the National Bureau of Statistics.

The official PMI is weighted more toward bigger State-owned enterprises, while the HSBC/Markit survey includes more smaller private firms.

"The economy is stabilizing," said Qu Hongbin, chief economist for China at HSBC, "although it is too early to say that it has bottomed out, particularly in light of a weaker property sector".

Among the sub-indices of the PMI result, the one for new export orders was the most upbeat. It leapt to a four-year high of 53.2 in May from April's 48.9, underscoring the rising overseas demand.

But new orders from within China, representing domestic demand, remained sluggish. "The lack of sustainable growth momentum warrants stronger policy support. We expect both monetary and fiscal policy to be loosened gradually over the coming months," Qu said.

The survey results augured well for other key monthly economic data expected to be released on Sunday, and gave a fillip to Asian stock markets.

China's economy has had a bumpy ride this year as data showed an extensive cooling in investment, retail sales and factory output, feeding concerns that growth could fall further from the 18-month low seen between January and March.

In the face of disappointing data before May, the central government announced "targeted easing" to prevent the economy from slowing, although it made no shift in the overall direction of its macroeconomic policies.

In a statement released on Friday, the State Council, China's cabinet, said it will lower the reserve requirement for banks that have extended a certain amount of loans to rural borrowers and smaller companies. Though details are not yet known, the cut in the ratio will free up additional cash for loans.

The statement also included a promise for the central bank to disburse more loans to commercial banks through a system known as "re-lending".

Zhu Baoliang, an economist at the government think tank State Information Center, said the earlier pro-growth measures, including faster investment in railways and public housing, and a tax break for small firms, have produced positive effects on the economy.

But unless long-term structural problems such as industrial overcapacity and local government debt were solved, it would be difficult for the economy to enter a robust upward cycle seen in the current US economy.

He estimated the economy in the second quarter could see a quarter-on-quarter rise in growth, but year-on-year growth may be the same as the first quarter's 7.4 percent.