China on track to recovery

The increase of China’s manufacturing activities, reflected by the latest Purchasing Managers’ Index, shows that the economy could be stabilizing as mini-stimulus measures start to take effect.

China registered its highest PMI level this year in June as the index rose to 51, a six-month high, compared with 50.8 in May. It has risen for fourth consecutive months, signaling that the world’s second-largest economy could be regaining strength after it slowed down earlier this year.

It remains too early to jump to the conclusion that the economy has fully recovered, but the latest index reading at least shows the country’s mini-stimulus measures - such as tax cuts, railway investment increases and shanty area rebuilding programs - have started to help the economy stabilize.

As part of the measures to stabilize the economy, 14 major railway building programs have been launched, involving investment totaling 300 billion yuan ($48 billion).

Meanwhile, the banking regulator is relaxing rules for the calculation of banks' loan-to-deposit ratio, which will allow banks to lend more cash into the economy to keep it going.

The China Banking Regulatory Commission said on Monday that selected loans to small firms and the agricultural sector will be excluded in the computation of banks' loan-to-deposit ratio, and the definition of deposits will also be broadened to include items such as large negotiable certificates of deposit.

This means banks will be able to re-lend more of their deposits to support the corporate sector and shore up the overall economy.