Chinese Economy on Track to Recovery

China's Purchasing Managers' Index (PMI) rose in April for the fifth month in a row, up 1.1 points from March to 53.3. Since the index dipped below 50 last year as the economy slowed, this is the second consecutive month that the PMI ended above the important threshold of 50. A reading of above 50 indicates expansion in the manufacturing sector. The statistics came from a survey conducted by the China Federation of Logistics & Purchasing and the National Bureau of Statistics, which polled about 700 Chinese firms.

Of the key subindexes, the purchasing price index and the employment index exceeded 50 for the first time since last year. The new orders index have remained above 50 for three months now, and the new export order index is just shy of 50, at 49.1, up 1.6 points from March. Of the 20 industries tracked by the PMI index, only five industries (metals, tobacco, chemicals, pharmaceuticals, wood processing & furniture) continued to contract in April.

The continued strengthening of PMI seems to indicate that China's vital manufacturing sector is on the path to recovery. Statistics showing accelerated growth of industrial output in March and strong fixed-asset investment also point to better confidence in the economic outlook. We attribute the improvement to prompt actions taken by the Chinese government to pump liquidity into the system through a massive stimulus package and a record amount of lending in the past several months. These have helped stop the economy from sliding further amid the global demand slump. However, we are concerned that much of the recovery so far has been driven by government spending, while the private sector, especially firms in the southeast coastal regions, remains weak.

Market Recap
After last week's big drop, the stock market rebounded this week as economic data continues to show signs of recovery. Over the four-day trading week shortened by the May 1 holiday, the Shanghai Composite Index increased by 1.2% to 2,478 this week, while the Shenzhen Composite Index increased 2% to 9,503.

Financial
Taiwan Stock Market Opens Up to Qualified Investors from the Chinese Mainland
On May 4, institutional investors from the Chinese mainland will be able to buy shares and futures traded in Taiwan, but they won't be able to obtain board seats or gain management control of the invested firms. Although such investments were approved late last year, implementation details emerged only recently after the two sides signed a financial co-operation pact.

Allianz and American Express Sold Half of Their Stakes in ICBC
This week, two strategic investors of Industrial and Commercial Bank of China,  Allianz (AZ) and  American Express  (AXP), sold half of their shares of the bank after the lockup expired on April 28. The shares sold represented 1.2% of the bank's total shares and 4.7% of the bank's shares listed on the Hong Kong Stock Exchange.  Goldman Sachs (GS), another strategic investor, which was also allowed to sell 20% of its stake in ICBC last week, has not sold any shares so far. Goldman's representatives have indicated several times recently that the bank is in no rush to sell these shares.

Technology
China Mobile Bought 12% of Taiwan's Third-Largest Mobile Carrier
China Mobile announced Wednesday that it agreed to buy 12% of Far EasTone for about $551 million in cash. Far EasTone is Taiwan's third-largest mobile operator with about 6.2 million mobile subscribers and rich operating experiences in 3G and related mobile service offerings. This is the first time that a Chinese firm with significant state ownership has invested in a major firm in Taiwan.

1Q Internet Advertising Dropped, but March Increase Signaled Recovery
First-quarter Internet advertising spending in China declined 25.3% sequentially and 13.8% year over year to CNY 3.1 billion ($450 million), according to local research firm iResearch. This is the sharpest decline since 2007, as Chinese firms tightened their purse strings amid the economic slowdown. Nevertheless, there are signs that ad spending is rebounding, as March ad spending rose 30% from the prior month.

Lun Lu, Iris Tan, and Peter Liu contributed to this article.