PMI figures influenced by Spring Festival holiday, fall in new orders

China's manufacturing industry expanded for the fifth consecutive month in February, but at a weaker pace, influenced by the Spring Festival holiday and a decline in new orders, suggesting a modest economic recovery.

A welder at a construction site in Jiujiang, Jiangxi province, on Thursday. A gauge of China's manufacturing sector released on Friday suggests the industry continued to expand in February. ZHENG HAIYAN / FOR CHINA DAILY

The Purchasing Managers' Index, a leading economic indicator showing operational activities in the manufacturing sector, dropped to a five-month low of 50.1 in February, compared with 50.4 in January, the National Bureau of Statistics and the China Federation of Logistics and Purchasing reported on Friday.

The 50-level is the boundary separating expansion from contraction.

HSBC Holdings Plc also released the manufacturing PMI for February based on its own survey. A reading of 50.4, a fall from 52.3 in January, showed the same moderating trend in economic growth.

"It doesn't signal that China's recovery is losing steam, given the greater volatility of readings around the Chinese New Year period," said Qu Hongbin, chief China economist at HSBC.

A statement from the federation said China's industrial production is stable, with enterprises optimistic on future development. "On the whole, the economic growth momentum remains sound," it said.

The official statistics showed that new orders and export orders retreated last month, due to weakened demand.

The bureau said the sub-index for new orders dropped to 50.1 from 51.6 in January, while the reading for export orders fell to 47.3, a drop of 1.2 points from a month earlier.

Zhang Liqun, an analyst with the Development Research Center of the State Council, said:"Export orders have fallen for three consecutive months ... showing the uncertainty in overseas markets.

Jiang Yongzhong, head of the Chamber of Commerce for Wenzhou Businessmen in Jinhua, Zhejiang province, said: "The seemingly recovering global economy has brought no obvious changes to struggling businesses in Jinhua after Spring Festival compared to the past year, causing the majority of small businesses to suffer great losses."

Jiang added that hopefully the situation will ease soon, with businesses seeing growth in orders and profits after the first quarter.

The bureau's data showed that in February, the PMI for small-scale businesses dropped to 46 last month from 46.2 in January, suggesting a contraction, while the index for large enterprises was unchanged at 51.3.

Zhang said the operational situation for small and medium-sized enterprises remains difficult, because of increasing production costs and a decline in new orders. "This contraction has never been reversed, but has worsened."

Louis Kuijs, chief China economist at the Royal Bank of Scotland and a former World Bank economist, said China's growth has continued, but GDP growth in the first quarter of 2013 is expected to moderate somewhat after strong growth of 7.9 percent in the final quarter of 2012.

Kuijs added: "Inflation and housing prices are on the rise, while policymakers are increasingly calling for the reining in of financial risks stemming from local government debt and the rapidly expanding shadow banking sector."

He predicted that it will be less likely that the government will tighten monetary policies "any time soon", but it may contain overall credit expansion.

The bureau plans to release details of industrial output for the first two months and the inflation level for February on March 9, and these figures will give a clearer picture of the economy.

Qu, from HSBC, added: "China's gradual recovery will be sustained in coming months thanks to firmer labor market conditions, improving domestic demand and relatively accommodative policy support."

Zhang Zhiwei, chief China economist with Nomura Securities Co Ltd, forecast that year-on-year GDP growth in the first three months may peak at 8.2 percent, before slowing to 7.3 percent in the second half as macro policies may be tightened.

Contact the writers at chenjia1@chinadaily.com.cn and yuran@chinadaily.com.cn