Asia-Pacific News

China PMI Ticks Up, but Turnaround Still Long Way Off

China’s manufacturing activity rose marginally in September, a survey by HSBC showed, raising hopes that a slowing Chinese economy is finally stabilizing, but economists say a turnaround may still be a long way off.

An employee stacks grills for Geely Automobile Holdings Ltd. Emgrand 7 series automobiles at the company's factory in Cixi, Zhejiang Province, China.
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The flash purchasing managers' index (PMI) edged up to 47.8, from 47.6 in August, a nine-month low, suggesting that manufacturing activity in the world’s second-biggest economy may be picking up.

An improvement in new orders and new exports seen in the survey is also good news, says Frederic Neumann, co-head of Asian economic research at HSBC. He added, however, that the numbers will be “choppy” before they show a sustained improvement in China’s manufacturing sector.

“There’s stabilization, but I wouldn't necessarily purchase champagne,” Neumann told CNBC Asia’s “Cash Flow.” “It's more of a red wine celebration than a champagne celebration at this point. It's a very choppy period, but not a sign that the economy is rebounding.”

Until there are further signs of pick up in the economy, China’s government will need to provide the economy with more , analysts said.

China last week unveiled a series of measures to help its export sector, including faster payment of export tax rebates and an increase of loans to exporters. That was on top of approvals for infrastructure projects worth more than $150 billion earlier this month.

Beijing has also cut interest rates twice and eased bank reserve requirement ratios, which freed more capital for loans, three times since last November.

Still, economists warn that these measures may not be enough to counter the slowdown in China’s economy, which expanded 7.6 percent in the third quarter, its slowest pace in three years. China’s official PMI in August dipped below 50 — a line that demarcates expansion from contraction — for the first time since November 2011. 

“China's manufacturing sector remains downbeat,” Alaistair Chan, an economist with Moody’s Analytics in Sydney.

“Weakness among export manufacturers has led to the rollout of stimulus measures for the sector, and I believe the Ministry of Commerce will announce further measures later this month. I think they will focus on liquidity issues,” he added, referring to policies already announced, such as the granting of more loans to exporters.

The government’s latest stimulus measures could help China’s economy grow an annual 7.9 percent in the third quarter, according to a poll of economists by Reuters at the end of August.

HSBC’s Neumann, however, says it could take longer for the stimulus measures to work their way through to the economy and so a recovery is more likely to take place next year.

“We know they (the Chinese government) have the means to stimulate the economy,” he said. “And it does take a few months to gain traction even if we had an (another) announcement today. I'm a bit cautious of a sharp pick up into year end. Probably a stabilization, but a real big surge — probably only next year,” Neumann said. 

By CNBC’s Jean Chua