Positive Manufacturing Data Raises Hopes that China is Headed for a Soft Landing

China's economic growth has been slowing, as the eurozone crisis and weakness in the United States erode demand for Chinese exports and property prices fall as a result of tight restrictions on purchases.

China's manufacturing activity expanded for the third straight month in February thanks to an uptick in exports, official data showed Thursday, raising hopes that China is heading for a soft landing.

The official purchasing managers index (PMI) rose to 51 in February from 50.5 in January, with most sectors showing signs of improvement, the China Federation of Logistics and Purchasing said in a statement.

A reading above 50 indicates that industry is expanding, while a reading below 50 suggests it is contracting.

Imports and new export orders showed a "distinct" improvement in February from the previous month, the federation said.

It quoted Zhang Liqun, a researcher at government think tank the Development Research Centre, saying the data suggests the world's second largest economy is "stabilizing."

Analysts, however, warned that the figures may have been distorted because the weeklong Chinese New Year holiday fell in January this year, meaning there were more working days in February.

HSBC's purchasing managers index also showed signs of improvement, though it remained below 50. The manufacturing PMI rose to 49.6 in February from 48.8 in January, the British banking giant said in a statement.

"Despite the marginal improvement in the headline PMI ... deteriorating external demand is adding more downside risks to growth in the absence of a strong comeback in domestic demand," HSBC chief economist Qu Hongbin warned.

"We expect the PBOC [central bank] to step up policy easing efforts as inflation pressures recede."

China's economic growth has been slowing as the eurozone crisis and weakness in the United States erode demand for Chinese exports and property prices fall as a result of tight restrictions on purchases.

In February, the central bank cut banks' reserve requirement ratio for the second time in three months, as policymakers moved cautiously to ease credit limits and spur economic activity.

Beijing has pledged to "preemptively adjust and fine-tune" economic policy to prevent a hard landing that could trigger widespread job losses in the key manufacturing sector and trigger social unrest.

But authorities likely will move slowly for fear of reigniting inflation, which reached a more than three-year high of 6.5% in July, and property prices, which have risen out of the reach of many ordinary Chinese.

Copyright Agence France-Presse, 2012

TAGS: Trade
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