China's Economic Recovery Gains Momentum with Pro-Growth Policies and Strong Manufacturing Performance

China's Economic Recovery Gains Momentum with Pro-Growth Policies and Strong Manufacturing Performance
Image credit: China Xinhua News X handle

Recently released indicators show continued strong momentum in China's economy during the first half of the year, bolstering confidence in a broader recovery. The June purchasing managers' index (PMI) for China's manufacturing sector, which measures manufacturing activity vitality, remained unchanged from May, according to the National Bureau of Statistics (NBS).

Notably, the high-tech manufacturing reading increased from 50.7 in May to 52.3 in June, marking its eighth consecutive month in the expansion range. The equipment manufacturing reading was 51, staying in expansion territory for the fourth successive month. Wen Tao, an analyst at the China Logistics Information Center, noted that the June sub-index performance indicates accelerated production, new growth drivers, increased vitality within microeconomic entities, and reduced raw material cost pressures.

The average PMI in the first half of 2024 was 49.8, a 0.3 percentage point increase from the second half of 2023, showing a sustained economic recovery trend, according to Wen. Earlier NBS data revealed that China's major industrial firms saw their combined profits reach 2.75 trillion yuan (about 385.88 billion U.S. dollars) during the January-May period, a 3.4 percent year-on-year increase.

Zhang Liqun, a researcher at the Development Research Center of the State Council, attributed this upward momentum to effective policies aimed at stabilizing growth and promoting recovery. He also emphasized the importance of countercyclical macroeconomic policy adjustments, noting that China is at a pivotal juncture for advancement amid adversity.

Despite its ongoing economic recovery, China faces numerous challenges, including a complex external environment, inadequate effective demand, and weak public expectations. To address these, China has implemented a series of pro-growth policies to enhance economic resilience and achieve its target GDP growth rate of approximately 5 percent this year. One such policy move includes the issuance of 1 trillion yuan of ultra-long special treasury bonds to support major national strategies and enhance security capacities in key areas, with four batches issued since May and the remaining bonds scheduled for issuance by mid-November, according to the Ministry of Finance.

China has also provided substantial financial support for large-scale equipment renewal and consumer goods trade-ins, including a 500 billion yuan re-lending program established in April to promote technological innovation and industrial upgrades. According to a China Merchants Bank research institute, these policy initiatives will play a crucial role in fueling domestic demand, potentially increasing investment in manufacturing equipment by 300 billion yuan and overall manufacturing investment by 1 percent in 2024.

To boost consumption, the National Development and Reform Commission, along with three other government bodies, unveiled measures in late June to create new consumption scenarios in sectors such as tourism, automobiles, and electronics. These measures include expanding the visa-free transit policy, relaxing vehicle purchase restrictions, and promoting the consumption of intelligent, AI-powered electronics.

Looking ahead, Zhang Wenlang, chief macro analyst at China International Capital Corporation Limited Research, expects the pace of fiscal expenditure in the second half of 2024 to outpace that of the first half. Liu Aihua, an NBS spokesperson, stated, "As policies are implemented with greater precision, their effectiveness will be realized fully, offering sustained support for the development of the real economy."