CHINA ECONOMY

From Hong Kong Standard


Stepping smartly on different paths

Friday, July 25, 2014

China's factory activity expanded at its fastest in 18 months in July as new orders surged.
Additionally, the euro zone's private sector perked up, suggesting the global economy started the second half on a solid footing.While China is relying on increased government stimulus to steer its economy away from reliance on exports to consumer spending, Europe has taken the opposite approach: combining fiscal austerity with near- zero interest rates.The latest HSBC/Markit Flash China Manufacturing Purchasing Managers' Index suggested that government stimulus was working, rising to 52 in July from 50.7 in June.

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That was the highest reading since January 2013, and well above the 50-point level that separates growth from contraction for the second consecutive month.A comparable survey of private sector activity in the euro zone also rose more than expected, to 54 from 52.8, even without signs of the resurgence in inflation from dangerously low levels that the European Central Bank is trying to engineer.Taken together with data pointing to a solid expansion for the United States, and with most stock markets rallying or near record highs, the reports suggest the world economy is in a good position."The strength of [the] data from China and the euro zone offers some encouragement that there is some momentum building for the global economy at the start of the third quarter," said Mark Wall, European economist at Deutsche Bank.But the PMI data coincided with the latest Reuters poll on the outlook for Asia, which suggested China will struggle to maintain these rates of growth into next year, partly because of risks a property market downturn might threaten the economy.Analysts polled by Reuters expect China's economy to expand by 7.4 percent this year compared with the last reported rate of 7.5 percent. Some analysts say more stimulus may be needed to offset falling property prices. There are also fears over deteriorating credit quality. REUTERS