China Feb factory growth fizzles as demand wanes

An employee works at a steel factory that exports to Europe and America in Jiaxing, Zhejiang province, Feb 28, 2013. [Photo / Agencies]

China's factory growth cooled to multi-month lows in February as domestic demand dipped, weighing on firms already hit by slack foreign sales and underlining the patchiness of the country's economic recovery.

But the bigger-than-expected retreat in two purchasing managers' indexes (PMIs) on Friday does not signal China's economy is slipping into another slowdown, analysts said. Instead, they show China's recovery this year would be mild, as widely expected.

Separate data from China's bank regulator that showed banks weathered their worst economic downturn in 13 years last year without any rise in bad debt ratios could further assuage investors worried about the health of the world's No 2 economy.

An official PMI from the National Bureau of Statistics eased to 50.1 after seasonal adjustments in February, the weakest reading in five months and just above the 50-point level demarcating growth from contraction on a monthly basis. January's reading was 50.4.

A second PMI issued by HSBC fell to a four-month low of 50.4 after seasonal adjustments, off January's two-year high of 52.3 and in line with a flash reading in late February.

"Today's data point to a stabilization of economic activity in coming months, not a strong recovery in growth," said Jian Chang, a Barclays analyst.

Unlike recent months when lethargic foreign demand for Chinese goods was the Achilles' heel for factories, domestic demand was surprisingly soft in February and an additional challenge for firms already fighting weak sales abroad.

The official PMI survey, the larger of the two surveys with a sample size of 3,000, showed growth in new orders fell while export orders contracted from January.

New orders hit a four-month low of 50.1 while new export orders dropped to a five-month low of 47.3. In the HSBC survey, the new orders sub-index fell to 51.4 from January's two-year-high, while export orders was little changed above 50 points.

China's statistics agency said large companies grew in February while mid- and small-sized firms shrank.

Among sectors, ferrous and non-ferrous metal smelters and special equipment makers received more new orders, while new orders fell for textile and furniture makers, and wood and food processors.

Analysts said the uneven pace of growth suggests China's modest economic rebound requires no change in monetary policy for now.

"The pace of the ongoing recovery is mild, implying no need for the People's Bank of China to tighten policy any time soon," said Qu Hongbin, an HSBC economist in Hong Kong.