The HSBC flash China manufacturing PMI edged higher to 49.5 in July from 48.2 in June. This is the second July month-on-month pickup in the past five years, after that in 2009 when the economy was also on the way to recovery. This is positive evidence, supporting the view that the government's easing measures to boost investment and demand have started to take effect.

Summer is usually the low season of the year for industrial activities, but the output index rose from 49.3 in June to above 50 at 51.2, the highest in nine months, pointing to a pickup in industrial production growth in the third quarter. I maintain the view of more but measured monetary easing in the second half, and see more room in fiscal policy to support growth.

The sub-index also confirmed that employment conditions are worsening in July. With the Chinese economy slowing continuously in the past six quarters, from 9.8 percent in the fourth quarter of 2010 to 7.6 percent in the second quarter this year, this is probably not surprising.

As China's export growth is expected to face more headwinds in the coming months and overall growth recovery has remained tepid so far, the risk of more job losses is on the rise.

In the labor market, it has not been until this month that reports of job losses and migrant workers returning home have started to emerge. Employment conditions are closely linked to social stability, something I am confident the Chinese government is fully aware of. Concerns over massive job losses could be behind the government's desire to ensure growth at a reasonable level, and therefore the easing measures seen in the past months.

From a cyclical perspective, China's employment conditions have held up well for much longer than many might have expected. This is especially so considering the rather sharp economic slowdown over the past year. Industrial production growth fell to 9.5 percent in the second quarter from 11.6 percent in the first quarter and 14 percent in 2011.

With slowing construction activities (property investment decelerated to 17 percent year-on-year from 28 percent in 2011) and exports (to 11 percent from 20 percent in 2011), the relatively stable labour market is somewhat puzzling.

Besides the changing demographics, investment- and heavy-industry-led slowdown, and firms' labour hoarding, a few interesting factors are also helping to absorb some of the unemployed workers from construction sites and factories.

These factors include faster growth in the central and western regions, development of the service sectors in the east coast, and government subsidies to rural areas over the past decade which are making farming increasingly a fallback option for some migrant workers who still have land back home.

The new job opportunities provide evidence of the potential of the Chinese economy to benefit from balanced regional development, development of the service sector, and rural development.

The author is director, China economist at Barclays. The views expressed here are entirely her own.

(HK Edition 07/25/2012 page2)