Chinese factory activity at 7-month high

China released official data on the purchasing managers’ surveys for the manufacturing and non-manufacturing sectors.

The manufacturing PMI rose to the strongest level since July hitting a seven-month high in February although export orders shrank and deflationary pressures persisted, a private business survey showed, adding to the view that yet more interest rate cuts will be needed.

On Monday, a survey showed the HSBC/Markit Purchasing Managers’ Index (PMI) increased from January’s 49.7 to 50.7 in February.

The figure was stronger than a flash reading of 50.1, which was just above the 50-point level that separates growth in activity from a contraction on a monthly basis.

However, although factory activity slightly picked up pace, the survey showed manufacturers struggled to cope with erratic export demand and deflationary pressures.

The new export orders sub-index dipped to 48.5 in February, the sharpest contraction in a year, while both input and output prices fell for a seventh month. Manufacturing employment shrank for a 16th month, although the pace of job shedding moderated.

An official survey released on Sunday showed China’s factory sector contracted for a second straight month in February on unsteady exports and slowing investment, reinforcing bets that more policy loosening is needed.
The official survey looks more at larger, state-owned firms, while the HSBC/Market survey focuses on smaller firms.

Chinese policymakers are embarking on their biggest easing campaign since the depths of the global crisis as the world’s second-largest economy is weighed down by a cooling property market, high debt levels and excess factory capacity.

The People’s Bank of China cut interest rates on Saturday, in the latest effort to support the economy as its momentum slows. The move was its third major policy easing since late November and came just days before the annual meeting of the country’s parliament.

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