PMI seven-month low confounds economists

A woman works in a clothing factory in Lianyungang city, East China's Jiangsu province, Oct 13, 2013. [Photo/Xinhua]

BEIJING - China's manufacturing activity contracted for the second month in a row in February, hitting a seven-month low and dividing economic opinion.

The HSBC/Markit China flash manufacturing PMI for February dipped to 48.3 from a final reading of 49.5 in January, showing manufacturing conditions deteriorating at a moderate pace in February, said data company Markit in a statement on Thursday.

The flash reading was below the market consensus of 49.5.

According to Markit, new orders fell to 48.1 in February from January's 50.1 and production to 49.2 from 50.8 in January. New export orders rose to 49.3 from January's 48.4.

Grim outlook for small factories

PMI figures above 50 percent indicate expansion and below 50 percent, contraction.

Commenting on the figure, HSBC's chief China economist Qu Hongbin said February's flash reading moderated as new orders and production contracted, reflecting renewed destocking.

Gathering deflationary pressures imply that underlying manufacturing growth momentum could be weakening, and Beijing policymakers may need to fine tune policy to keep growth steady in the coming year, Qu said.

Lu Ting, chief China economist with Bank of America Merrill Lynch, noted that employment had dropped further below 50. New export orders improved but remained below 50. Inventories of raw materials and finished goods both fell below 50 in February.

Lu believes the data had quite a big impact on the market and said that markets had already been hit in the day.

Both mainland and Hong Kong stock markets fell quickly following the release of the number and both closed lower on the day.

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