China manufacturing grows at slowest pace for months

The mainland's manufacturing activity grew this month at the slowest pace in four months, hitting optimism about a recovery in the world's second-largest economy, a private survey has shown.

The HSBC flash purchasing managers' index (PMI) for China retreated from a two-year high of 52.3 in January to 50.4 in February, according to a preliminary survey issued by HSBC and Markit Economics yesterday. The figure also lagged behind the median estimate of 52.2 of 11 analysts surveyed by Bloomberg.

Qu Hongbin, chief China economist at HSBC, said the flash PMI was above the threshold of 50, which indicates an expansion, for the fourth consecutive month.

"The Chinese economy is still on track for a gradual recovery," Qu said.

He added that the underlying strength of the economic recovery remained intact as indicated by expanding employment and credit growth, despite the moderation of February's figure.

Mainland banks extended 1.07 trillion yuan (HK$1.32 trillion) in new loans in January, more than double December's figure, the People's Bank of China announced earlier this month.

However, the new export orders sub-index fell to 49.8 from January's 53.7, indicating weak export demand.

The PMI readings were partly distorted by the timing of the Lunar New Year holiday this month, but some economists said that the figures still hinted at headwinds in the economic recovery.

"The readings indicate that the momentum of the mainland's economic recovery in the first quarter remains weak," said Chen Wei, an analyst with China Minzu Securities, adding that the distortion due to the holiday was only part of the reason.

Chen said the figures did not mean that the manufacturing activity was turning bearish, but more observations were needed after the Lunar New Year holiday. "I still expect the manufacturing sector to recover, but it will be at a gradual and slow pace," he said.

Yang Weixiao, an analyst at Lianxun Securities, said the decline in the HSBC PMI revealed that the mainland's economic recovery was not quite resilient enough.

The flash China manufacturing output index also fell to a four-month low of 50.9 from January's 53.1, which indicated that the demand was not sustainable, Yang said.

If the output sub-index dropped for a second consecutive month and the new orders also did not pick up, it would be obvious that the mainland's manufacturing sector was unable to help foster economic growth, he said.