Chinese economy on road to recovery

The interest rate cuts, improvement in export orders, findings of recent surveys; all point to the fact that the world's third-largest economy is stabilizing.

Improved PMI
Indicating growth, China's official Purchasing Managers Index (PMI) stayed above the 50 level mark for the third consecutive month. Issued by the China Federation of Logistics & Purchasing, a level of below 50 in the PMI indicates contraction.

For the month of May, the PMI stood at 53.1 vis-à-vis 53.5 in April. Meanwhile, the CLSA China PMI rose to 51.2 in May compared to 50.1 in April, marking the second consecutive month it was above 50.

Goldman Sachs economists said of the CLSA China PMI reading, "Although we believe external demand continued to be weak, this is more than offset by the strong growth in domestic demand, especially fixed asset investments."

Brian Jackson, an analyst with Royal Bank of Canada, agreed, “Weak external demand is still hurting China's manufacturers, but conditions are gradually improving in response to stimulus spending. China remains on track for a moderate recovery after the sharp slowdown seen late last year."

The encouraging numbers led credibility to the economist’s projection that the Gross Domestic Product in China, with support from the government, would expand by 8 percent this year.

Better placed than the West
Even though the rate of growth in China would be well below the double-digit growth rates achieved in the good old days when recession did not take a toll, China’s growth rates are much better than the rates achieved by most other large economies in recent times. The pace of manufacturing has literally slouched in the tattered euro zone.

Analysts warned that it would be idealistic to anticipate that the trend of recovery in China will continue on an upwards path. They said that some volatility and dips in the quarters to come is bound to be there. Such instability should be seen as a buying opportunity, they suggest.