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China's PMI rises to 51% in February

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Chinese workers work at a textile factory in east China's Hubei province. [File photo]

China's manufacturing sector posted the third consecutive month of growth in February on rising new orders and export demand, a sign that the world's second-largest economy is getting back on track, new official data has showed.

The Purchasing Managers Index (PMI), a preliminary readout of the country's manufacturing activity, rose to 51 percent in February 2012, the highest level since October last year, the China Federation of Logistics and Purchasing (CFLP) said Thursday.

The pick-up follows a 50.5-percent reading in January, 50.3 percent in December and 49 percent in November, according to statistics from the CFLP.

A PMI reading of 50 percent demarcates expansion from contraction.

THe CFLP said the rebound was a sign of "steady improvements" in the manufacturing sector.

Liu Ligang, director of the economic research department of ANZ Greater China, attributed the rebound to China's easing monetary policies and improving external climate.

China announced last month that it would cut the reserve requirement ratio (RRR) for banks for the first time this year, which Liu said would help to direct more capital to the real economy.

Though the move has spurred expansion in the manufacturing sector, the 51-percent-reading is still lower than the same periods' average of 52.7 percent in past years, which suggests the foundations of the recovery are not "firm enough," said Peng Wensheng, chief economist for the China International Capital Corporation, the country's largest investment bank.

In breakdown, the manufacturing sub-index edged up 0.2 percentage points to 53.8 percent, the highest since June last year, while backlogs dropped significantly, with a sub-index of 48.8 percent, down 0.9 percentage points from January.

Unlike January's rebound which was mostly boosted by soaring demand for consumer products during the festival period, the latest reading was mainly driven by equipment manufacturing, said a CFLP statement.

Last month, 13 industries, including transportation equipment manufacturing, pharmaceutical manufacturing and general machinery industries, enjoyed a PMI of over 50 percent, while the papermaking and beverage industries came in under 50 percent, according to the statement.

Meanwhile, the CFLP's sub-index for new orders hit 51 percent in February, up 0.6 percentage points from January, while the index for new export orders and imports saw a significant rebound, partly due to the improving economic climate in the U.S. and Europe, according to the statement.

The sub-index for new export orders added 4.2 percentage points to reach 51.1 percent and the sub-index for imports rose 3.9 percentage points to 50.8 percent.

"Looking at the demand growth in exports and investments, the economy is likely to see further pick-ups in the future, but at a slower pace," said Zhang Liqun, of the development research center of the State Council, China's cabinet.

But the CFLP stayed cautious in interpretations of the reading, saying a rising sub-index for new export orders directly after the Spring Festival is normal, which makes it important to watch the following trends concerning exports.

The PMI for small enterprises also received a lift, up 3.2 percentage points to hit 55.2 percent.

The better-than-average performance came as the government has stepped up support for small and micro-sized businesses.

"The PMI shows that the favorable policies are beginning to work," said the statement.

The sub-index for purchase prices rose 4 percentage points from January to 54 percent, which Zhang said was cause to guard against imported inflation.

However, the CFLP's data jarred with figures released hours later by British bank HSBC, which placed the PMI for February at 49.6, up slightly from 48.8 in January but still below the demarcation line.

HSBC economist Qu Hongbin said the mild pick-up did not change the overall slowing trend of China's economic growth.

Qu expects the central bank to further ease policies to prop up growth, and Peng agreed, predicting two or three more RRR cuts in the first half of the year.

The CFLP's PMI is based on a survey of purchasing managers in 820 companies in 20 industries.

China plans to expand the sample size for measuring the PMI from the current 820 companies to around 3,000, according to a previous statement from the National Bureau of Statistics and the CFLP. A timetable for the changes has not been specified.