China’s HSBC PMI for Feb rises to seven-month high

BEIJING — Activity in China’s factory sector edged up to a seven-month high in February, but export orders shrank and deflationary pressures persisted, a private business survey showed, adding to the view that more interest rate cuts will be needed to boost an economy weighed down by a cooling property market and high debt levels.

The People’s Bank of China cut interest rates on Saturday for a second time in three months in a sign of official worry that China’s economic slowdown is deepening too abruptly.

The HSBC/Markit Purchasing Managers’ Index (PMI) released yesterday showed manufacturing activity climbed to 50.7 last month — the strongest level since July — from 49.7 in January, as overall new orders picked up.

The number was stronger than a preliminary reading of 50.1, which was just above the 50-point level that separates growth in activity from a contraction on a monthly basis.

But while factory activity picked up slightly, the survey showed manufacturers struggled to cope with erratic export demand and deflationary pressures.

The new export orders sub-index dipped to 48.5 last month, the sharpest contraction in a year, while both input and output prices fell for a seventh month. Manufacturing employment shrank for the 16th month, although the pace of job shedding moderated.

A separate report also showed that Chinese home prices fell again last month from January, the eleventh consecutive drop on a monthly basis.

“China’s manufacturing sector saw an improvement in overall operating conditions in February, with companies registering the strongest expansion of output since last summer while total new business also rose at a faster rate,” said Markit economist Annabel Fiddes. “However, the renewed fall in new export orders suggests that foreign demand has weakened, while manufacturers continued to cut their staff numbers (albeit fractionally).”

An official survey, which looks at larger, state-owned firms, released on Sunday showed China’s factory sector contracted for a second-straight month in February on unsteady exports and slowing investment, reinforcing bets that more policy loosening is needed.

“We cannot see any signs of stabilisation in the economy. We expect more policy easing via interest rate and reserve requirement cuts,” said ANZ economist Zhou Hao.

The economy grew 7.4 per cent last year, its slowest expansion in 24 years. Growth may slow 7 per cent in the first quarter — widely seen as the minimum level for keeping employment steady — from 7.3 per cent in the fourth quarter, a top government think-tank said in a report yesterday. Agencies