China official PMI rises to 50.3 in July
China's manufacturing sector managed to stay in expansionary phase in July, according to official government data on Thursday, defying forecasts of a contraction.
Official manufacturing Purchasing Managers' Index (PMI) rose to 50.3 in the month from 50.1 in June, and better than a Reuters consensus estimate of 49.9. The key 50 threshold demarcates expansion from contraction.
The data drew swift reaction from markets. The Australian dollar, whose recent weakness has been attributed to the slowing growth in China, rose a quarter of a percent to trade at $0.8964.
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According to Peter Morici, professor at the Smith School of Business, University of Maryland, the figure means China's economy isn't looking at bad as many doomsayers have warned, but stressed that the slight rise in the index doesn't mean things are looking up.
"Let's be clear. Things aren't looking terrible. (But) a movement of two-tenths of a percentage point in an index number, not even a hard number, is not statistically significant," said Morici on CNBC Asia's Squawk Box. "The markets will make something out of it, but I would read it as the same."
The official PMI data came even as a private gauge of manufacturing activity showed a far more downbeat picture.
The final reading of the HSBC China PMI, also released on Thursday, fell to an 11-month low of 47.7 in July from 48.2 in June, in line with its flash estimate released last week.
HSBC's Frederic Neumann puts the divergence in the readings to the different audiences in both surveys.
"That's an interesting divergence, you have it occasionally but this time it's interesting," said Neumann, managing director and co-head of Asian economics research at HSBC.
"What we had in China is stress in the financial system and that affects smaller companies more than state owned enterprises. Official PMI is more skewed to larger companies and the HSBC figure reflects the smaller companies and that is where you get this divergence," he added.
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There have been increasing concerns of a credit squeeze in China in recent months, which saw the the benchmark seven-day repo rate surge to a record high of 11.2 percent in June.
On Tuesday, China's central bank attempted to ease tightening liquidity conditions by injecting cash into local money markets, after the repo rate spiked to 5 percent. The rate is currently holding at the 5 percent handle.
According to HSBC's Neumann, more stimulus measures will be coming.
"I think they [authorities] are getting cold feet. One of the risks is that the stress in the interbank market that you saw in past couple of months that hasn't completely vanished is impacting financial conditions, leading to further downside risk for growth," he said.
"So, I do think stimulus is needed. They are already being more supportive at least in rhetoric and that's what's really required to put a floor under growth," Neumann added.
— By CNBC's Li Anne Wong. Follow her on Twitter: @LiAnneCNBC