China Feb factory activity shrinks more than expected: official PMI

Thomson Reuters China’s Finance Minister Lou and China’s central bank governor Zhou attend group photo session during the G20 finance ministers and central bank governors meeting in ShanghaiActivity levels at Chinese manufacturing firms contracted at the fastest pace seen since November 2011 last month, adding to concerns that growth in the world’s second largest economy is continuing to slow.

The index is used as an indicator of factory activity, and any reading below the 50 mark points at a contraction in the sector.

The official non-manufacturing Purchasing Managers’ Index (PMI) fell to 52.7 from January’s 53.5, but remained well in expansionary territory, according to a similar sector survey by the National Bureau of Statistics (NBS).

“The Indian manufacturing economy edged further in the right direction during February, eking out modest gains in new orders and output”, Pollyanna De Lima, Economist at Markit and author of the report, said.

The sub-index for new orders settled at 48.7, down 0.9 points from last month, showing dwindling demand in the non-manufacturing sector.

Seasonal effects may have distorted the readings, as the week-long Lunar New Year holiday fell in February.

The central bank late on Monday stepped up efforts to cushion demand amid plunging stock prices and a weakening currency, freeing up the amount of cash the nation’s banks can lend.

“We think PBoC will cut policy rates by 25 basis points in the first quarter and lower RRR (banks’ reserve requirement ratio) by another 100-150 basis points this year”.

But ANZ analysts Raymond Yeung and Louis Lam pointed out that the average PMI level for January and February stood at 49.2, below the breakeven point.

Crude prices fell in Asian deals and the Japanese yen hit a three-year high against the euro, while the Chinese yuan advanced the most in three weeks.

Beijing on Monday said it expects layoffs of 1.8 million workers in the coal and steel industry alone, about 15% of the workforce, to cut down overcapacity.

With manufacturing in both a cyclical and structural funk, Beijing has been keen to grow the services sector and make consumption a stronger driver of the economy.

A reading above 50 indicates expansion, while a reading below 50 reflects contraction.