Economy looking up on policies

China is likely to see an economic rebound in the coming months on stronger policy easing and better containment of the COVID-19 pandemic, said economists and analysts.

Experts said they expect to see stronger fiscal policy easing, notably in infrastructure spending, to prop up growth, as well as targeted monetary policy easing to support small and medium-sized enterprises and public works.

They made the remarks as China's economic activity has softened since March amid multiple hits from resurgent domestic COVID-19 cases and changes in the external environment.

While downward pressure hampered production and dampened demand, services and manufacturing sector activity improved in May.

The Caixin China General Services Purchasing Managers' Index came in at 41.4 in May from 36.2 in April, but still remained below the 50-point level that separates growth from contraction, media group Caixin said on Monday.

While the COVID-19 pandemic still weighed heavily on China's services activity, its impact has eased, according to Caixin.

Wang Zhe, a senior economist at Caixin Insight Group, said both manufacturing and services sectors showed marginal improvement in May but still remain in contraction territory.

Caixin's composite PMI, which includes both manufacturing and services activity, rose to 42.2 in May from 37.2 in the previous month.

An official survey released last week also showed an improvement in both manufacturing and services. The official PMI for China's manufacturing sector rose to 49.6 in May from April's reading of 47.4, and the country's official services PMI came in at 47.1, compared with 40 in April, according to the National Bureau of Statistics.

Experts said China's economic activity will improve with a gradual recovery of key indicators, such as industrial production and consumption in the following months, as the State Council, China's Cabinet, puts a package of economic stimulus measures into practice.

The State Council recently unveiled a total of 33 measures covering fiscal, financial, investment, consumption and industrial policies to further stabilize the economy.

The 33 detailed measures include the implementation of value-added tax credit refunds on a larger scale, speeding up the issuance of local government special bonds and increasing financial support for infrastructure and major projects.

Yin Yue, an analyst at Shanghai-listed Hongta Securities, said while China's economy is facing downward pressure, the economy will gradually recover as the government has pledged plenty of supportive measures, and more are likely on the way.

Li Chao, chief economist at Zheshang Securities, said he expects to see a rebound in economic activity with better control of the pandemic and gradual resumption of work and production.

While the economy has been severely affected by the pandemic, the impact of the contagion on industrial production and consumption will gradually ease, Li said.

"We expect infrastructure investment to support growth in the second half. The government now aims to fully spend proceeds of local government special bonds by the end of August. Even if some cities or rural areas have been affected by COVID outbreaks, projects in other areas could continue," said Tommy Wu, lead economist at Oxford Economics.

The Ministry of Finance said a total of 2.03 trillion yuan ($306 billion) in local government special bonds have been issued across localities over the first five months. China has set its annual quota for local government special bonds at 3.65 trillion yuan.