China Manufacturing Decline Slowing

China's PMI index shows export orders rose sharply

China's manufacturing activity contracted for a fifth straight month in February but the decline slowed, falling just short of the neutral level, the China Federation of Logistics and Purchasing said on March 4.

The Purchasing Managers' Index, or PMI, for China's manufacturing sector rose to 49 in February, up from 45.3 in January, the China Federation of Logistics and Purchasing said. The PMI sank to a record low of 38.8 in November.A reading above 50 means the manufacturing economy is expanding, while a reading below 50 indicates an overall decline.

Economists said the readings suggested China's economy was starting to stabilize and showed the government's economic stimulus efforts, including increased bank lending, were starting to have an effect. "Nevertheless, manufacturers should not expect strong business growth this year. Amid an extremely difficult economic climate, the best they can do perhaps is to survive the global tsunami," said Sherman Chan, an economist for Moody's Economy.com.

The PMI's export order component showed the sharpest rise, climbing to 43.4 from 33.7 in January. The employment component rose 3.1 points to 46.1.

"It is important not to set expectations too high amid this positive news," Goldman Sachs economists wrote in a research note.The investment bank said caution was still needed, pointing to the experience of Chinese commodity producers who were stung after they increased prices in December only to see demand rise slower than they anticipated and prices fall again.

The government is due this month to publish data for the January-February period, the year's first full set of monthly economic data, giving a fuller picture of the state of the economy. The Lunar New Year holidays distorted China's economic data and except for the surge in January loans, the figures for the month were gloomy. Exports and imports fell sharply, factory prices declined and consumer-price inflation dropped steeply.

Copyright Agence France-Presse, 2009

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