A worker assembles electronic components at a factory in Huaying, Sichuan province. Provided to China Daily

Manufacturing activity strongest in 26 months, but employment lags

HSBC PMI picks up as policy easing kicks in

June PMIs in positive territory

The Chinese economy may have touched bottom last month as manufacturing activity reached a nearly two-year high, suggesting that government support policies are having the desired impact.

The official manufacturing Purchasing Managers Index, a widely watched indicator, rose to 51.7 in July from 51.0 the previous month, the China Federation of Logistics and Purchasing announced on Friday.

"The PMI continued its recovery momentum at a faster pace. That suggests the overall trend for the economy is to stabilize from its down-turn, and that trend will persist for a while," said Zhang Liqun, an economist at the Development Research Center of the State Council (cabinet).

A PMI reading above 50 reflects an expansion in manufacturing, while one below 50 signals a contraction.

The improvement in July was the fifth monthly rise in a row. It also took the PMI to the highest level in 26 months.

Of the five sub-indexes of the PMI, only one - that for employment - failed to improve. Zhang said this means capital and technology may have replaced labor as the "driver of development" in the manufacturing sector. The official survey was conducted by the National Bureau of Statistics, and it covered 3,000 companies nationwide in 31 manufacturing industries.

NBS statistician Zhao Qinghe attributed the July increase to the government's growth-stabilizing policies and the improving external environment, which helped boost production and new orders.

But Zhao noted that the performance of large manufacturers is generally better than that of small ones, and the latter group "needs more fiscal and monetary support from the government".

In the official data, the PMI for small enterprises stood at 50.1 in July, rising into expansionary territory for the first time since April 2012.