China manufacturing PMI
A worker welds at a machinery manufacturing factory in Huaibei, China. (Reutuers) Reuters

China's manufacturing sector recovered in August as it posted an expansion in activity following three months of deterioration, thanks to the stimulus measures announced by the government.

The HSBC manufacturing purchasing managers' index (PMI) showed a final reading of 50.1 in August, up from an 11-month low of 47.7 in July. The reading, however, slightly missed economists' expectations of 50.2.

In the index compiled by Markit Economics, a reading above 50 indicates an expansion in manufacturing activity. The final index is based on five individual indexes measuring new orders, output, employment, suppliers' delivery times and stock of items purchased.

"This implies that growth in China's manufacturing sector has started to stabilise on the back of a modest rebound of new orders and output," Hongbin Qu, HSBC's China economist said in a statement.

"This was mainly driven by the initial filtering through of recent stimulus measures and companies' restocking activities."

Qu also noted there would be "some upside surprises to China's growth in the coming months".

Higher Output and New Orders

Output expanded for the first time in three months amid signs of improved market conditions, HSBC said.

In addition, total new orders increased for the first time since April. But total export orders continued to decline due to weak client demand in Europe and the US.

Stocks of purchases declined for the seventh month in a row, but the rate of decline was moderate. Also, employment levels decreased for the fifth successive month in August, but the rate of job shedding was the weakest in four months.

Government Measures to Boost Growth

China's gross domestic product increased by 7.8% in 2012, the worst performance in 13 years, and economists expected a further slowdown after the country posted growth rates of 7.7% and 7.5% in the first and second quarters of 2013, respectively.

Despite the lag, China's authorities were reluctant to announce big stimulus measures, but took steps to boost domestic demand.

The measures include lower taxes on small companies and more railway development. In August, China suspended value-added tax and the turnover tax for businesses generating monthly sales below 20,000 yuan ($3,257; £2,125).

The country is also looking to help medium-sized private enterprises with measures including simplifying customs clearance procedures, reducing operational fees and facilitating exports.

Chinese authorities are targeting a growth rate of 7.5% for 2013.

Separately, the official manufacturing PMI showed the highest reading in the year at 51.0, up from July's 50.3.

China HSBC