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More Data Suggests China’s Economy May Be Firming Up

“BEIJING—Two more measures of China’s economic health showed improvement in May, adding to signs that the economy is stabilizing after its sluggish start this year and suggesting that government support policies may be starting to show results.

The government’s index of activity in the nonmanufacturing sector in May hit its highest level since November last year, according to data released Tuesday, while a private sector gauge of factory activity showed gains for the month as well.

Added to a stronger reading in May for the official manufacturing Purchasing Managers’ Index, released on Sunday, the overall economic picture appeared somewhat brighter following moves to accelerate spending on railways, offer business tax breaks and make more financing available to smaller companies.

“These are good signs,” said Citigroup C +0.40% economist Ding Shuang. “But real economic activity may not rebound that quickly,” he cautioned.

The official nonmanufacturing Purchasing Managers’ Index rose to 55.5 in May from 54.8 in April, according to the China Federation of Logistics and Purchasing, which releases the data along with the statistics bureau. The nonmanufacturing PMI covers services, including retail, aviation and software, as well as real estate and construction. The upturn was largely a result of the important services sector, a key source of employment, while construction was less robust as a result of weaker property prices.

A reading above 50 means expansion from the previous month while anything below that shows contraction.

Meanwhile, the HSBC China Manufacturing Purchasing Managers’ Index, a gauge of nationwide factory activity, rose to a final reading of 49.4 in May from 48.1 in April, HSBC Holdings HSBA.LN -0.64% PLC said Tuesday. The reading still remained below 50, where it has been every month this year, showing contraction from the previous month but at a slower pace.

“The final (manufacturing) PMI reading for May confirmed that the economy is stabilizing, but it is too early to say that it has bottomed out, particularly in light of a weaker property sector,” said Qu Hongbin, HSBC’s chief economist for China, in a statement accompanying the data.

China posted economic growth of 7.4% year on year in the first quarter, down from 7.7% in the final quarter of last year…..”

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