China is the world’s second largest economy and for that reason, recent evidence of a slow-down in the Chinese economy was giving concern to investors around the world because of the potential for knock-on factors. Consequently, news that Chinese manufacturing picked-up sharply in August will be warmly welcomed; particularly in conjunction with encouraging economic data from Europe and the USA that has emerged recently.
A survey conducted by banking giant HSBC, its Purchasing Manager’s Index, returned a value of 50.1 for August. This value was up sharply from the July reading of 47.7 and indicates expansion (anything above 50 represents expansion whilst lower figures indicate contraction). The August figure is the first positive reading in four months. The Chinese economy has continued to expand, but the rate of that expansion has slowed over the past two quarters, although it continues to be spectacular when compared to other leading economies. In Q1, the economy expanded by 7.7%, but this eased to 7.5% in Q2.
Chinese growth is highly dependent on its exports and demand in Europe and the USA has been relatively weak because of problems within these economies. China has acted to boost its domestic demand to meet the shortfall (and put growth on a more sustainable footing) which has included freezing VAT and turnover tax for small businesses with annual sales below $40000. The move may help up to 6000000 small businesses and give a boost to employment. The government has also pledged to facilitate exports by such small businesses by simplifying customs clearance procedures, and reducing operating costs.
However, despite the good news from the PMI survey, most analysts still expect the rate of expansion of the Chinese economy to ease further in Q3 of this year.