Manufacturing up again

Although there was a slight pick-up in China's official Purchasing Managers' Index for July, it does not signal the economy is out of the woods yet.

The index, which tracks large enterprises in the mainland, rose to 50.3 from 50.1 in June. But a cloudy outlook remains, especially considering the divergent reading of the HSBC PMI, which mainly tracks small enterprises, fell to 47.7 in July from 48.2 in June. A PMI reading of more than 50 indicates the expansion of manufacturing activities, while a reading of less than 50 indicates contraction.

The economic prospects have certainly improved as China has unveiled a series of mini-stimulus measures in the past weeks following GDP growth of 7.5 percent year-on-year in the second quarter.

The government is boosting spending in social housing, urban infrastructure, high-speed rail lines and energy-saving industries. Meanwhile, it has offered tax breaks to the 6 million small companies nationwide and further expanded the pilot program to replace the sales tax of enterprises with value-added tax in the transportation and some tertiary industries, which will reduce tax burdens for a large number of enterprises nationwide. As their supportive effect gradually materializes, these measures will bolster the economy.

The decline of the country's year-on-year GDP growth in the second quarter compared with the previous two quarters, has triggered concerns at home and abroad, leading to the official emphasis last month for a steady and healthy growth.

The slight rise in the official PMI for July is a reflection of improved market sentiment as a result of those measures.

Still, the PMI rise remains weak given the fragile domestic and international economic situation.

So when monitoring the effect of its targeted stimulus measures, the authorities should pay special attention to the predicament of the country's small enterprises, especially in the trade sector.

The HSBC PMI reading, which is based on surveys of mainly small enterprises in the trade sector, highlights the difficult situation facing those companies, as demand from external markets has remained weak for months.

Small enterprises are the main source of jobs, so they deserve special attention from policymakers.