• China Feb manufacturing expands

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    BEIJING: Chinese factory activity expanded in February, snapping two consecutive months of contraction, a closely watched private survey showed Wednesday in a bright spot amid a broad slowdown in the world’s second-largest economy.

    British banking giant HSBC said its preliminary purchasing managers’ index (PMI) reading for this month came in at a four-month high of 50.1, up from 49.7 in January.

    The result bested the median estimate of 49.5 in a Bloomberg News survey.

    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.

    HSBC releases its final reading for February on Monday, while China’s National Bureau of Statistics announces the country’s official PMI for the month on Sunday.

    For the first time in more than two years, the official figure for January showed manufacturing activity contracting, coming in at 49.8, a decline from 50.1 in December.

    Despite the improvement in the HSBC survey, the bank’s chief economist for China Qu Hongbin said the result was mixed, stressing that while domestic demand showed some strength, new export orders contracted for the first time since April last year.

    “Today’s data point to a marginal improvement in the Chinese manufacturing sector going into the Chinese New Year period in February,” Qu said in the HSBC release, referring to the week-long holiday which can heavily impact monthly economic statistics.

    “However, domestic economic activity is likely to remain sluggish and external demand looks uncertain,” he added.

    “We believe more policy easing is still warranted at the current stage to support growth.”

    Happy new year?
    China’s leaders are trying to pull off a managed slowdown of the economy to make expansion more sustainable and led by consumer spending, as in other major economies.

    The growth slowdown in China last year—gross domestic product rose an annual 7.4 percent in 2014, a 24-year low—prompted some intervention by authorities.

    The People’s Bank of China (PBoC), the central bank, cut the percentage of funds banks must hold in reserve across-the-board earlier this month, seen as a way to free up more cash for lending and stimulate growth.

    That move followed the PBoC’s decision in November to cut benchmark interest rates for the first time in more than two years.

    Julian Evans-Pritchard, China economist at Capital Economics, urged “a degree of caution” on the PMI result given that the shifting timing of the New Year holiday can render “seasonal adjustments less accurate at this time.”

    “The holiday often results in a rush to stock up on inputs and complete existing orders before workers return home, while also resulting in longer delivery times,” he wrote in an analysis.

    “Either way, domestic demand appears to have held up better than foreign demand—the new export orders component fell sharply to a 20-month low.”

    Nomura economists, meanwhile, also emphasized the impact of companies replenishing stocks as the main driver in the rebound.

    “The sustainability of this restocking remains in question,” they wrote.

    US Federal Reserve Chair Janet Yellen said Tuesday that weakness in China as well as Europe continue to pose risks for the US economy, saying that China’s growth could slow more than Beijing’s leaders currently expect.

    AFP

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