UpdateChina’s factory activity falls for seventh month amid sluggish demand as economy slows

Activity in China’s manufacturing and services sectors continued to shrink last month as business conditions deteriorated, prompting calls for the government to refocus on bolstering demand amid looming downward pressure from Beijing’s policy to rein in industrial overcapacity.

The official manufacturing purchasing managers index (PMI) fell to 49 in February, compared with the previous month’s reading of 49.4, the National Bureau of Statistics said yesterday, suggesting factory activity had shrunk for a seventh straight month. It was the lowest reading since November 2011.

Growth in services activity continued to slow in February, with the PMI for the non-manufacturing sector falling to 52.7 in February from 53.5 the previous month.

READ MORE: China’s fresh bank ratio cut points to more monetary easing for economic revival

The figures were released a day after the central bank announced unexpectedly that it would cut commercial banks’ reserve requirement ratio, in an attempt to ensure ample liquidity and encourage banks to give out loans. The move came into effect yesterday.

The announcement echoed remarks by the central bank governor Zhou Xiaochuan’s last week that Beijing would slightly ease its “prudent” monetary policy.

Raymond Yeung Yue-ting, a senior economist at ANZ Banking, said the figures could prompt more government measures to bolster the economy.

“Accommodative monetary policy is needed to shore up growth,” Yeung said. He predicted the central bank would further slash banks’ reserve requirement ratio to encourage more lending to businesses.

Conditions were unlikely to improve for companies in the first half of the year as the government rolled out more proactive fiscal policies to support growth, he said.