China's manufacturing activity may shrink for a fourth consecutive month in February, despite edging up to the highest point in four months, according to a preliminary report released Wednesday.
China's Purchasing Managers Index, the earliest gauge of the country's industrial growth, rose to 49.7 in February, up from a final reading of 48.8 in January, HSBC Holdings PLC said. The index stood below 50, a level separating expansion from contraction, for the fourth consecutive month.
The new export orders index dropped to 47.4 in February from 50.4 in January, affected by the European debt crisis.
Growth remains on track for a slowdown, despite the marginal improvement in the headline flash PMI led by quickened production after the Chinese New Year, Hongbin Qu, China economist at HSBC, said in a note.
Qu said with no meaningful rebound in domestic demand in sight, and external weakness, more downside risks exist.
The People's Bank of China announced last week that it would cut the reserve requirement ratio for banks by half a percentage point to 20.5 percent, which will go into effect from Feb. 24.
As inflation pressures continue to ease, the central bank is expected to step up fiscal easing following the first cut in the banks' reserve ratios this year, Qu added.
The National Bureau of Statistics and the China Federation of Logistics and Purchasing are scheduled to release the official PMI data for February on March 1.