PMI improvement indicates Chinese economy's resilience

A surprise strengthening in China's manufacturing sector following slumps in major economic indicators has pointed to the great potential in the Chinese economy.

The HSBC flash manufacturing purchase managers' index (PMI) rose to 50.5 in September from August's final reading of 50.2, beating the market expectation of 50, which would have been right on the line between expansion and contraction.

Sub-indices of total new orders and new export orders rose to the highest level since March 2010 and the quantity of purchases made by Chinese enterprises also increased at a faster pace, the British bank said on Tuesday.

Qu Hongbin, HSBC's chief China economist, said economic activity in the vast manufacturing sector showed signs of stabilization although the picture is still mixed.

The gain in the flash PMI is a blow to speculation that the Chinese economy may face a sudden loss of momentum and miss the 7.5-percent GDP growth target for 2014 after lackluster major economic indicators such as power consumption, freight volume as well as the official PMI last month.

The August PMI released by the National Bureau of Statistics (NBS) dipped to 51.1 from July's 51.7, fueling fresh pessimism about the future of the country's economy.

"Despite the moderation, the reading remained in a reasonable range and well above the expansion-contraction line," said Cai Zhizhou, a macroeconomics researcher at Peking University.

Although the NBS PMI reading tumbled, its sub-index for business outlook notably rebounded 2.6 points to 57.9, suggesting high morale for the latter half of the year.

To make things better, the traditional spending spree during the holiday seasons at the end of the year is usually able to bolster orders and drive up sales.

"China's economy has much room to grow and the manufacturing sector will generally enjoy stable expansion," said Cai.

Improving economic figures and brightening market sentiment are likely to firm up the Chinese government's determination to restructure the economy and put more focus on quality rather than quantity of growth.

There has been increasing activity in high-end manufacturing and high-tech sectors in recent months, while overcapacity-haunted sectors like steel producing and cement making are cooling off.

Along with the industrial reshuffling, the profitability of Chinese enterprises has begun to recover as official figures showed that growth in industrial profit is accelerating.

Fluctuation in major economic indicators has been inevitable and within expectation, Chinese Premier Li Keqiang said earlier this month, adding that all the measures rolled out by the Chinese government were designed both for immediate and longer-term interests.

"China's economy is highly resilient and has much potential and ample space to grow," said Li.