China is expected to continue to tweak its policy towards easing monetary conditions for medium-sized enterprises and may ease the requirements on bank's reserve, the government-affiliated Kuwait China Investment Company (KCIC) said.

"We believe the chance of an interest rate cut is higher towards the end of the year, but the monetary authority in China will remain cautious until it is sure that inflation is fully under control. Investors awaiting market rallies based on massive stimulus from China will probably not witness such an event this year," KCIC said in its weekly analysis prepared by its analyst, Fatema Akashah.

The precarious situation of the Eurozone debt crisis dampens the global economic outlook, and for a global economy that is in desperate need of support from the industrial powerhouse of the world, slowing economic activity in China is worrying, the Kuwait-based investment firm specialized in emerging Asia investments noted. "However, risks of a sharp decline in economic growth in China are low," it said.

The official Purchasing Managers Index (PMI), released by the Chinese government's National Bureau of Statistics, has been easing, but the pace is steady enough to guarantee a "soft landing" of the economy, hence easing market fears of a crash, KCIC said.

"The Chinese government is weighed with the responsibility to protect its economy from the adverse affects of slowing global economy and to keep inflation under control. Inflation has eased from its highs, it is now below the central bank's target rate, thereby low enough to start loosening credit conditions, but the government will not loosen the liquidity too fast, otherwise inflation will shoot up once again," it said.

Concerns over China's growth have been plaguing investors once again, after the two barometers of China's manufacturing sector indicated a sharper than expected deceleration.
The Flash HSBC/Markit Purchasing Managers Index (HSBC PMI), which is designed to give the first reading of the state of China's industrial sector before National Bureau's official PMI, fell to revised 48.4 in May from April's 49.3, below the 50 mark, indicating a month-on-month contraction. Official PMI in May also fell to 50.4 from 53.3 in April, which indicated the month-on-month growth in manufacturing sector was almost stagnant but not yet contracting, according to KCIC.

The PMI is an index composed from data based on monthly questionnaires answered by purchasing executives in different sectors. The index monitors seasonally adjusted month-on-month changes in the managers' views on business conditions. A reading of above 50 means that more than 50 percent of managers see conditions as better than last month, hence an expansionary business environment. The manufacturing PMI is often used as a lead indicator on the condition of the economy, since China's industrial sector is approximately half of the economy.

The results of the both official PMI and HSBC PMI are in line with China's slowing growth trend, and the fears of slowdown are unwarranted because China is expected to experience a robust growth of 7.5-8 percent in 2012 due to resilient domestic consumption and government spending, said the KCIC.

The Chinese government has expressed desire to pursue growth stabilization measures, which means increased fiscal spending in certain sectors so that growth does not fall below target.

Manufacturing activity in China has decelerated in response to weak global demand and easing domestic consumption. The export sector is slowing the most because the debt crisis in the Eurozone and weak US growth are hurting demand. The components of the official PMI showed that managers are witnessing a very sharp decline in new orders, as this component recorded a 49.8 in May, down from 54.5 in April.

KCIC is an investment company founded by an Amir Decree with a capital of KD 80 million and a mandate to invest in domestic demand-driven sectors in Asia, namely energy, real estate, healthcare, infrastructure and financial services.

The publicly-listed company employs a team of Asia specialists and currently manages assets in excess of USD 260 million. Key shareholders include the Kuwait Investment Authority, which is the nation's sovereign wealth fund, and National Investment Company, one of the leading investment banks in the Middle East, as well as Al Ghanim Industries, one of the largest conglomerates in the Middle East.