China PMI tops forecast, hard landing fears ease

"Indeed, the stronger-than-expected PMI supports our baseline scenario of a soft landing."

Follow us

The Australian dollar gained a third of a cent on hopes that the higher-than-expected government PMI would support Chinese demand for the country's commodities.

"January PMI continued to pick up slightly from the reading of December, indicating that the economic slowdown trend is gradually stabilizing," Zhang Liqun, a researcher with the Development Research Centre of the State Council, said in the official statement.

"The improvement in both new order and stock of purchase sub-indexes reflected the factory production is recovering. But the new export order sub-index dropped last month, showing that the external demand is shrinking and we should pay high attention to the possible hit from external uncertainties."

The central bank is shifting towards a looser policy stance to ward off a sharp growth slowdown, although lingering inflation concerns point to a gradual move. Fiscal policy remains expansionary this year.

The official sub-index for new orders rose to 50.4 in January, its highest since October, from 49.8 in December.

However, reflecting a sluggish global economy and fears of recession in Europe, new exports orders fell for the fourth month running. The index dropped to 46.9 from December's 48.6.

The HSBC PMI stood at 48.8 in January -- broadly in line with its initial reading before China's Lunar New Year holiday.

It marked a slight improvement from 48.7 in December, but HSBC Chief China Economist Qu Hongbin said the data showed more government support was needed for the economy.

"The final results of January's PMI survey confirmed the still weak growth momentum of manufacturing activities into the New Year," Qu said in a statement.