China Manufacturing PMI Drops In February Hinting At Economic Rebound Losing Momentum

A separate survey by HSBC-Markit also depicted slowdown in the factory output indicating that the economic recovery has slowed.

The official data on the Purchasing Managers' Index (PMI) in the manufacturing sector showed that the index fell to 50.10 in February, from 50.40 in the previous month. A reading above 50 indicates expansion, but analysts had expected the country’s manufacturing sector to record an expansion of 50.90 in February.

The drop in the index was mainly due to a decline in the new orders from 51.6 to 50.1, the lowest since September. The output component edged down from 51.3 to 51.2, while the inventories index fell from 47.4 to 46.6, the lowest since February 2011, indicating a sharp contraction in inventories, data showed.

According to the HSBC Purchasing Managers’ Index released Friday, China's manufacturing activity fell sharply to 50.4 in January, from the previous month’s 52.3.  However, the data --after adjusting for the strong seasonal factors associated with the Chinese Lunar New Year —showed a marginal strengthening of operating conditions in the Chinese manufacturing sector.

Although some economists are pointing out the Chinese New Year holidays as a reason for the decline in the manufacturing activity, many other analysts believe that the disappointing PMI figures for February indicate that the world’s second-largest economy is losing momentum after regaining some momentum in January this year.

“Seasonal factors may have played a part, but the weakness of China’s two manufacturing PMIs last month cannot entirely be explained by the timing of Chinese New Year. They suggest that the economic rebound is losing steam,” Capital Economics said in a research note.

“The final February HSBC manufacturing PMI suggests a slower pace of expansion. But China's recovery continues on improving domestic demand conditions and the labor market,” Hongbin Qu, chief economist, China & Co-Head of Asian Economic Research at HSBC, said in a research note. “The pace of ongoing recovery is mild, implying no need for the People’s Bank of China (PBoC) to tighten policy any time soon.”

Both the surveys indicate a fall in the major sub-indices such as raw material inventories, job creation and new orders.

The HSBC survey said output also expanded for the fourth month in a row in February, but marginally slower than January. New orders rose for the fifth consecutive month in February at a moderate pace. The prices of raw materials increased, which raised output costs.  

The difference in the trend by the surveys can be linked to variation in the sample size. HSBC China report on manufacturing is based on data compiled from responses of over 400 manufacturing companies, while the official Chinese PMI is based on the response from about 3,000 firms.