China manufacturing improves in February: HSBC

BEIJING: China’s manufacturing activity in February improved more than initially thought, HSBC said Monday, but weakening foreign demand and declining prices signalled the world’s second largest economy still faces multiple woes.

The British bank’s final purchasing managers’ index (PMI) for the month came in at 50.7, up from its preliminary reading of 50.1 and the highest since July’s 51.7, the firm said in a statement.

PMI readings above 50 point to expansion, while anything below suggests contraction.

The index, compiled by information services provider Markit, tracks activity in China’s factories and workshops and is a closely watched indicator of the health of the Asian economic giant.

Annabel Fiddes, an economist at Markit, said the improvement was mainly underpinned by the strongest expansion of output since last summer.

“However, the renewed fall in new export orders suggests that foreign demand has weakened, while manufacturers continued to cut their staff numbers (albeit fractionally),” she said in the statement, adding dropping input and output prices pointed to persisting deflationary pressures.

The National Bureau of Statistics on Sunday said China’s official PMI showed contraction for the second straight month in February, coming in at 49.9, a marginal improvement from January’s 49.8.

The two surveys often differ to some degree. Analysts have said HSBC’s survey is more weighted towards small exporters while the official one looks to larger companies.

– Rate cut –

The official figure was released a day after the central People’s Bank of China (PBoC) announced it was cutting benchmark interest rates for the second time in three months, in a move to help stem a slump in Chinese growth.

China’s overall economy expanded 7.4 percent in 2014, a 24-year low, with the slowdown prompting authorities to loosen monetary policy in a bid to put a floor under growth.

The PBoC said in a note Saturday that “historically low inflation” was among the factors behind the decision to cut interest rates.

Chinese inflation as measured by the consumer price index (CPI) plunged to a more than five-year low of 0.8 percent in January, while the producer price index, a measure of costs for goods at the factory gate and a leading indicator of the trend for CPI, declined for the 35th straight month.

The PBoC surprised markets on November 21 by lowering interest rates for the first time in more than two-and-a-half years.

“February’s stronger-than-expected PMI readings suggest that a pick-up in domestic demand has led to a slight improvement in momentum, particularly among small firms, and that downward pressure on inflation has eased,” Julian Evans-Pritchard, China economist at Capital Economics, wrote in an analysis.

Still, he added that “even after Saturday’s rate cut, policymakers will need to do a lot more to prevent growth slipping next quarter”, suggesting the necessity for more stimulus.

Nomura economists, meanwhile, said in a report that they expect economic growth to slow to 7.1 percent in the first quarter from 7.3 percent in the final three months of last year, citing “deep-rooted structural challenges such as local government debt, the property market correction and deleveraging”, with further policy easing on the horizon.