Manufacturing survey offers hope for Chinese soft landing

Nearly two months after Chinese Prime Minister Wen Jiabao projected a lower-than-expected economic growth rate of 7.5% this year, the preliminary HSBC Purchasing Manager’s Index (PMI) for April indicates the worst of China’s slowdown may be passing.

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While the final results for April will not be released until May 2, data indicate the PMI rose to 49.1 this month, up from 48.3 in March. Anything below 50 indicates contraction and China’s PMI has not consistently been in positive territory since June 2011. Economists, however, say the ease in contraction this month indicates that government policies are helping.

In a bid to increase lending to businesses, in the last few months Beijing has twice cut the amount of money banks must hold in reserve. Last month, that resulted in 1.01 trillion yuan ($160 billion) in new loans, surpassing forecasts of 800 billion yuan.

“As April flash PMI ticked higher, this suggests that the earlier easing measures have started to work and hence should ease concerns of a sharp growth slowdown,” HSBC Chief Economist for China Qu Hongbin said in a statement.

Citigroup economist Ding Shuang told the Wall Street Journal that he projects GDP growth will bottom out at 7.9% in the second quarter, while aggressive government policies will boost growth in the second half.

“China’s economic slowdown has stabilized,” Ding said.

Indeed in recent weeks, several foreign automakers expressed confidence in Chinese consumer demand, announcing plans to expand manufacturing in China. Following the lead of Ford (F, quote) and Volkswagen (VLKAY, quote); Honda (HMC, quote) announced Monday that it will invest $560 million to build a new car assembly-line and engine factory. The factory, which will initially produce 120,000 vehicles annually beginning in 2014, will help the automaker reach a production capacity of 600,000 per year in the Middle Kingdom.

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