AKIPRESS.COM - China's factory activity expanded at its fastest pace in 18 months in July as new orders surged, a preliminary HSBC survey showed on Thursday, the latest indication that the economy is picking up as government stimulus measures kick in, Reuters reports.

The HSBC/Markit Flash China Manufacturing Purchasing Managers' Index rose to 52 in July from June's final reading of 50.7, beating a forecast of 51 in a Reuters poll.

It was the highest reading since January 2013, and above the 50-point level that separates growth in activity from contraction for the second consecutive month.

"Economic activity continues to improve in July, suggesting that the cumulative impact of mini-stimulus measures introduced earlier is still filtering through," said Qu Hongbin, chief economist for China at HSBC.

"We expect policy makers to maintain their accommodative stance over the next few months to consolidate the recovery."

Mainland China stocks jumped after the PMI report while shares in the rest of Asia edged higher. The Australian dollar hit a three-week high on prospects of stronger exports to China.

Still, some analysts say the recovery appears patchy, and more stimulus may be needed to offset the downdraft from the cooling property market on the broader economy and increasing risks in the financial system, such as deteriorating credit quality.

The official Financial News reported on Thursday that the amount of bad bank loans in China's eastern Shandong province surged nearly 26 percent in the first half of the year due to slower economic growth and government efforts to deal with industries which have large amounts of excess capacity.

"The economy is showing initial signs of a recovery. There is no reason the government will stop taking action," said Shen Jianguang, an economist at Mizuho in Hong Kong.

"We believe favorable fiscal and monetary policy need to be expanded further."

China's cabinet pledged on Wednesday to boost its support for small companies and the farming sector by getting commercial banks and the central bank to disburse more loans to them.