Chinese factory activity expanded this month, snapping two consecutive months of contraction, a closely watched private survey showed yesterday in a bright spot amid a broad slowdown in the world’s No. 2 economy.
British banking giant HSBC Holdings PLC 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 last month.
The result topped 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 this month on Monday, while the Chinese 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 last month showed manufacturing activity contracting, at 49.8, a decline from 50.1 in December last year.
Despite the improvement in the HSBC survey, HSBC chief economist for China Qu Hongbin (屈宏斌) said the result was mixed, emphasizing 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.”
Beijing is trying to pull off a managed economic slowdown to make expansion more sustainable and led by consumer spending, as in other major economies.
The growth slowdown in China last year — GDP rose an annual 7.4 percent last year, a 24-year low — prompted some intervention by authorities.
The People’s Bank of China, the central bank, cut the percentage of funds banks must hold in reserve across the board earlier this month to free up more cash for lending and stimulate growth.
That followed the bank’s decision in November last year to cut benchmark interest rates for the first time in more than two years.
Capital Economics China economist Julian Evans-Pritchard 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.”
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