China's Producers Sustain Rebound

BEIJING -- Chinese manufacturing activity continued to tick up in July from the previous month, showing the nation's economic rebound is taking hold.

The Purchasing Managers Index inched up to 53.3 in July, from 53.2 in June and 53.1 in May, data from the China Federation of Logistics & Purchasing showed Saturday.

The CFLP PMI has exceeded the boom-bust threshold of 50 for five months in a row, suggesting China's manufacturing sector continues to expand and could lift demand for import of materials, such as iron ore, from nations like Australia. A reading above 50 indicates expansion from the previous month, while one below 50 indicates contraction.

"As growth of domestic demand accelerates, the economy is likely to continue its rebound," said Zhang Liqun, a researcher with think tank Development Research Center of the State Council, in the CFLP statement.

China's economy grew 7.9% in the second quarter from a year earlier, accelerating from 6.1% growth in the first. The central bank last week estimated that the pickup in quarter-on-quarter economic growth on a seasonally adjusted annualized basis was even sharper.

Among signs China's export sector is stabilizing, the new export orders component of the PMI stayed above 50 for the third consecutive month, rising to 52.1 in July from 51.4 in June. Chinese exports had continued to fall from a year earlier through June, hurting economic growth.

The PMI indicates "continued expansion in domestic demand and initial recovery in export demand," said JPMorgan China Equities Chairman Jing Ulrich in a note.

But the government has warned that the foundation of the economic recovery isn't firm and the rebound has been uneven. Supporting the government's view, the gains in the CFLP PMI appear to be slowing. Price pressures also appear to be mounting.

The PMI rose by just 0.1 point in each of the past two months. And despite the pickup in new export orders, the new-order component was flat at 55.5 in July, suggesting demand continues to expand, but future improvements may not be as sharp as before. The import component of the PMI fell to 48.9 in July from 49.9 in June, and has remained below 50 for three months in a row.

Amid signs that the People's Bank of China is considering fine-tuning its moderately loose monetary policy to avoid future inflation and asset-price bubbles, the input-price component of the PMI rose to 59.9 in July from 57.8 in June. The rise suggests Chinese manufacturers face rising costs as some commodity prices grow, but economists say producers may not pass on the costs to consumers because of fierce competition.

By TERENCE POON