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China's PMI at its highest in 18 months: HSBC bank

BEIJING -- A key measure of Chinese manufacturing activity hit an 18-month high in July, HSBC said Thursday, in a further sign the world's second-largest economy is gaining momentum on the back of Beijing's mini-stimulus.

The HSBC preliminary purchasing managers index (PMI), which tracks activity in China's factories and workshops, leapt to 52.0 this month, its highest since January 2013, according to the British banking giant.

It was a substantial improvement from the final PMI for June of 50.7, which marked the first time since December the index had climbed above the 50-point break-even level suggesting the sector is expanding.

The indicator is a closely watched gauge of the health of the Asian economic powerhouse and key driver of global growth.

"Economic activity continues to improve in July, suggesting that the cumulative impact of mini-stimulus measures introduced earlier is still filtering through," HSBC economist Qu Hongbin said in a statement accompanying the data.

Total new orders increased at quickest rate in 18 months, while the output sub-index reached a 16-month high, said the statement.

The figures are compiled by financial information services provider Markit and released by HSBC.

Chinese economic growth accelerated to a forecast-beating 7.5 percent in the second quarter, up from 7.4 percent in the previous three months, which was the worst since a similar 7.4 percent expansion July-September 2012.

Beijing has since April introduced a series of policies in response to concerns over slowing growth, including tax breaks for small enterprises, targeted infrastructure spending and encouraging lending in rural areas and to small companies.

"PMI also reflects sentiment," said Lu Ting, an economist with Bank of America Merrill Lynch in Hong Kong, in a report. "Due perhaps to the escalation of supportive policies from Beijing, sentiment in the economy and financial markets have been noticeably improved."

Some economists said the pickup in the April-June period showed the economy had bottomed out and recovered.

But others warned that headwinds remained due to the country's huge but troubled real estate sector, which accounts for a significant share of the overall economy and is critical for local government revenues.

Julian Evans-Pritchard, an analyst with research firm Capital Economics, said that "downwards pressure" on the economy remains, "particularly from the property sector."

"Large inventories of unsold property mean that this may not necessarily feed through to stronger construction activity, which we expect will remain a drag on growth for the rest of the year."

China in March set its annual growth target for this year at about 7.5 percent, the same as last year.

Lu dismissed fears that Beijing might taper its mini-stimulus with the economy improving, adding that given the uncertainties and low inflation, the government was expected to "maintain the intensity" of its supportive measures for the rest of the year to achieve the annual growth target.

HSBC's Qu shared the view, saying: "We expect policy makers to maintain their accommodative stance over the next few months to consolidate the recovery."

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