HSBC PMI picks up as policy easing kicks in

June PMIs in positive territory

That reading was also in line with the PMI released jointly on Friday by HSBC Holdings Plc and Markit Ltd, which better reflects conditions for smaller businesses. The final reading for the HSBC-Markit PMI was 51.7, below the preliminary reading of 52.0.

Faced with an ongoing slowdown in GDP growth from 7.7 percent last year to 7.4 percent in the first half, Chinese policymakers have pinned their hopes on accelerating investment and speeding up fiscal spending, combined with a selective easing in monetary policy.

A State Council (cabinet) meeting last month outlined 10 specific measures, including more support to small businesses through relending, streamlining administrative procedures and eliminating unnecessary fees to give companies in targeted sectors easier access to money.

"Expansion in the PMI suggests that the support policies have borne fruit. The economy will be even better in the third quarter," said Lian Ping, chief economist with the Shanghai-based Bank of Communications Ltd.

"As the macroeconomy stabilizes, more support policies will push up overall financing demand. An accommodative monetary stance will also lead to rapid growth in credit supply," he said.

GDP growth may reach 7.5 percent in the third quarter, said Wang Tao, chief China economist with UBS AG. However, despite a widely anticipated rebound in the third quarter, Wang said the economy may again face downward pressure in the fourth quarter, mainly due to the impact of the cooling property market. "The government may be forced to launch more support policies," she said.

"It is expected that the central government will continue to ensure the implementation of 'mini-stimulus' policies to stabilize economic growth, adjust the economic structure and improve living standards," said Thomas Stanley, chief operating officer with KPMG LLP's global China practice.

KPMG has forecast that China's second-half economic growth will be higher than 7.5 percent, and that full-year GDP growth will achieve the government's 2014 target of 7.5 percent.

"The recent economic data show that the Chinese economy is continuing its steady evolution away from a 'growth-above-all' model ... I expect that China should now be able to sustain this level of economic performance with-out a major course correction," Stanley said.