China’s manufacturing activity last month improved more than initially thought, HSBC said yesterday, but weakening foreign demand and declining prices signaled that the world’s No. 2 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 51.7 in July last year, the firm said in a statement.
PMI readings above 50 point to expansion, while anything below suggests contraction.
Photo: AFP
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.
Markit economist Annabel Fiddes 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 that dropping input and output prices pointed to persisting deflationary pressures.
China’s National Bureau of Statistics on Sunday said that the nation’s official PMI showed contraction for the second straight month last month, coming in at 49.9, a marginal improvement from January’s 49.8.
The two surveys often differ to some degree. Analysts have said that HSBC’s survey is more weighted toward small exporters, while the official one looks to larger companies.
The official figure was released a day after the central People’s Bank of China announced that 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 last year, a 24-year low, with the slowdown prompting authorities to loosen monetary policy in a bid to put a floor under growth.
The central bank on Saturday said in a note that “historically low inflation” was among the factors behind the interest rate cut.
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 central bank surprised markets on Nov. 21 last year by lowering interest rates for the first time in more than 30 months.
“[Last month’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,” Capital Economics economist for China Julian Evans-Pritchard 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.
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