China's manufacturing expansion hits three-year high, pointing to steady recovery

China's manufacturing sector saw the fastest growth in activity in three years in June, thanks to strong production and stabilizing employment, according to a private survey released on Monday, adding to growing indicators of steady recovery in the world's second-largest economy.

While Chinese businesses continue to face complex external challenges, including rising trade protectionism, a growing number of policy measures aimed at further stabilizing growth and improving the business environment will continue to boost vitality and improve business confidence, analysts said.

The Caixin China General Manufacturing Purchasing Managers' Index (PMI) came in at 51.8 in June, up 0.1 points from the previous month, according to Caixin, a Chinese financial news outlet. The reading in June remained above the 50-point threshold that divides expansion from contraction and marked the fastest growth in activity since May 2021.

The Caixin PMI mainly tracks activity at smaller, private firms, while the official PMI largely focuses on state-owned and big manufacturing companies. In June, the official PMI came in at 49.5, unchanged from the reading in May, according to the National Bureau of Statistics (NBS) on Sunday.

"The Caixin PMI index focuses on private and small- and medium-sized enterprises, reflecting the recovery and development of these enterprises, and it is an important indicator of the continued consolidation and recovery of the economy," Li Chang'an, a professor from the Academy of China Open Economy Studies at the University of International Business and Economics, told the Global Times on Monday.

Li noted that the data show that small- and medium-sized enterprises are in a state of expansion, which reflects the improvement of expectations and market vitality. However, businesses continue to face many challenges, including a relatively lower level of expectations and confidence, the expert said.

Commenting on the official PMI on Sunday, Zhao Qinghe, an NBS statistician, said that judging from the output, China's economy generally maintained expansion, but the foundation for continued recovery still needs to be consolidated.

Cong Yi, a professor at the Tianjin School of Administration, said that thanks to continuous support from policy measures and continuously deepening reform, market confidence will continue to improve.

"Despite the pressure, China's economy still maintains a strong growth momentum, showing strong confidence and a foundation for continued recovery," Cong told the Global Times on Monday, pointing to strong signals from several recent meetings that point to stronger policy support going forward.

A meeting of the Political Bureau of the 20th Communist Party of China Central Committee on April 30, which analyzed the economic situation and economic work, noted that the economy has secured a good start this year, and China's economy still has a solid foundation, plenty of advantages, strong resilience and huge potential.

The country should front-load efforts to effectively put established macro policies in place, and implement a proactive fiscal policy and a prudent monetary policy well, according to the meeting, which called for ultra-long special treasury bonds to be issued at an early stage and put in good use.

Since the meeting, China has made a slew of measures to boost economic recovery, including the issuance of ultra-long special bonds. Most recently, the country on June 14 issued 50-year ultra-long special treasury bonds worth a total sum of 35 billion yuan ($4.82 billion), the first batch this year, in a boost for economic growth.

Thanks to the strong policy support, expectations for stable growth in the Chinese economy continue to improve. In May, the IMF raised China's GDP growth forecast for 2024 to 5 percent, up 0.4 percentage points from its previous forecast, citing strong GDP data in the first quarter and the Chinese government's policy measures.

China's GDP expanded by 5.3 percent in the first quarter, beating market expectations, and the country aims for a growth target of around 5 percent for the whole year. A growing number of indicators show that China is on track to meet this goal despite downward pressure, analysts said.

Consumption, the biggest growth driver, has seen a steady recovery since the start of the year, as holiday travel and spending remain strong. Most recently, during the Dragon Boat Festival in early June, a total of 110 million trips were made, up 6.3 percent year-on-year, and total domestic travel spending grew by 8.1 percent year-on-year to 40.35 billion yuan, official data showed.

The tourism boom is expected to last, as China entered the summer travel peak on Monday. China State Railway Group said that 860 million railway trips are expected during the summer travel rush, which will run through August 31.

In addition, policy support will continue to intensify, in terms of a proactive fiscal policy and prudent monetary policy, as well as efforts to improve the business environment, which will ensure the continued recovery of the Chinese economy, analysts said.