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English>>China Business

Signs of economic recovery

(China Daily)

10:58, November 03, 2012

About half a month after China announced its slowest quarterly growth in more than three years, the findings of two business surveys that show improving manufacturing activity will come as good news for Chinese policymakers, who have so far resisted the temptation of a large stimulus to lift the economy out of its deepest slump since the 2008 global crisis.

The purchasing managers index that the China Federation of Logistics and Purchasing released climbed to 50.2 on a 100-point scale, indicating the country's manufacturing activity returned to expansion in October for the first time in three months, while the HSBC PMI increased to an eight-month high of 49.5.

These represent upward momentum for China's manufacturing sector, which has been hit hard by weaker demand from Europe and the United States, as well as the domestic curbs imposed on investment and construction, aimed at cooling overheating.

As a closely watched barometer of the health of the economy, the improvement in the PMI indexes adds to hopes that not only will industrial activity continue to expand, but also that the Chinese economy as a whole will rebound in the fourth quarter of this year.

Such a quick recovery for the world's second-largest economy is more than welcome with global growth prospects still restricted by Europe's chronic debt crisis and the looming US fiscal cliff.

But caution is still needed against potential problems that might affect the country's mid to long-term economic growth.

While recognizing the remarkable resilience of the Chinese economy, policymakers in this country should not allow such promising signs of recovery to blind them from other worrying issues concerning the long-term health of the economy.

It was reported that two-thirds of the listed Chinese companies that have reported third-quarter results registered a year-on-year increase in accounts receivable.

Meanwhile, the ratio of nonperforming loans among commercial lenders also increased in the third quarter, the first time this year, while their provision coverage ratio declined.

These signs that the country's economic slowdown might be taking its toll on corporate balance sheets demand close attention from policymakers.

While the growing manufacturing activity suggests that the worst may be over for the Chinese mainland's economy, the worsening corporate profitability and increasing nonperforming loans are warning signs that the path to recovery will be long and bumpy.

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