CHINA NON-MANUFACTURING PMI SHOWS GAINS IN JULY

BEIJING--China offered up another dose of positive news on its economy Saturday as its gauge of non-manufacturing activity showed a modest strengthening.

The government touted the reading as evidence of stronger corporate confidence, though economists cautioned that it's too soon to predict a solid upturn for the world's second-largest economy.

China's official non-manufacturing Purchasing Managers' Index rose to 54.1 in July from 53.9 in June, reversing three consecutive months of declines. It was well above the 50 level, which divides expansion from the previous month from contraction, and pointed to slight gains outside of the manufacturing sector.

The news followed a small rise in the official July manufacturing PMI, a gauge that is heavily weighted toward big state companies, announced Thursday. That reading was offset by a decline to an 11-month low for the index compiled by banking giant HSBC, however. The HSBC indicator includes many smaller exporters which have been hit hard by sluggish global demand.

"The fact that both official PMI readings show improvement probably points to a slightly


better performance by big state firms," said Ma Xiaoping, an economist with HSBC.

"But I don't see a big improvement in the economy for the third quarter--it will be just about in line with the second quarter," she said.

China's economic growth has been slowing, coming in at 7.5% year-on-year in the second quarter after expanding 7.7% in the first quarter and 7.9% in the final quarter of last year.

Policymakers have targeted growth of 7.5% for the full year, but some economists predict growth could undershoot that level.

China is trying to rebalance its economy and move away from a reliance on investment and exports for growth. It has been seeking to boost its services sector, which is a big source of employment and key contributor to China's relatively low jobless tallies. The tertiary sector--which includes services--accounted for about 45% of the nation's gross domestic product in the first half of the year, up about two percentage points from a year earlier.

The China Federation of Logistics and Purchasing, which issues the PMI data along with the National Bureau of Statistics, said that services strengthened during July though construction slipped.

It also said that the business expectations sub-index climbed 2.1 percentage points to 63.9, its highest reading this year.

"This shows that companies in the non-manufacturing sector remain optimistic about the next quarter and have greater confidence in the prospects for their own operations as well as those of their industry overall," the CFLP said in a statement accompanying the PMI data.

While Beijing tries to rebalance the economy, it has also been rolling out fine-tuning measures that will help support growth and maintain business confidence.

On Tuesday, the Communist Party's powerful Politburo vowed to maintain steady growth over the rest of the year, pledging to stabilize exports and boost imports.

Policymakers have also vowed to push ahead with more railway and subway construction--even though the government has so far refrained from using massive stimulus spending to spur faster growth.

Beijing has also rolled out tax benefits for the services sector, pledged to cut administrative red tape and made repeated statements about ensuring credit to small and medium-sized business.

--Liyan Qi contributed to this article.

Write to William Kazer at william.kazer@wsj.com