China's economy is showing signs of stabilizing after slowing for two straight quarters, with official manufacturing and services indexes rising and gains in gauges of business expectations.

The non-manufacturing Purchasing Managers' Index rose to 54.1 in July from 53.9, the first acceleration since March, government data showed Aug. 3, following last week's unexpected gain in a manufacturing PMI. Readings above 50 indicate expansion. A services index from HSBC Holdings Plc and Markit Economics was unchanged at 51.3, a separate report showed today.

The reports may bolster confidence that Premier Li Keqiang's policies are helping prevent a deeper slowdown in growth, allowing him to pursue reforms that will secure more sustainable longer-term expansion. The country's economic-planning agency said yesterday the construction of transportation-related infrastructure projects will be accelerated, adding to efforts to boost domestic demand that have included tax-system changes and help for small companies.

"The PMI is supposed to be a leading indicator so we are witnessing a stabilization and a sign the economy isn't slowing down at a faster rate," said Steve Wang, Hong Kong-based chief China economist with Reorient Financial Markets Ltd. "A lot of economy-boosting measures have been put in place since the beginning of the year and there's a time lag for those to kick in, so we should see a bit of a rebound in the fourth quarter."

David Fuller's view This is encouraging news at a time when investors, including those within China, have been wary of the SHASHR Index (weekly & daily). The probability is that we saw an important low in late June, and a push back above 2200 would indicate further recovery scope for what remains one of the most oversold stock markets. Meanwhile, the Hong Kong Hang Seng Index (weekly & daily) remains considerably stronger.

Here is a recent short interview with Mark Mobius on China.