China's PMI improving as economy stabilizes

China's manufacturing activities improved last month thanks to domestic demand, but exports remain weak, according to analysts. The official Purchasing Managers' Index, a comprehensive gauge of manufacturing activities weighted toward large state-owned enterprises, edged up half a point from a month earlier to 51 in February, the China Federation of Logistics and Purchasing said yesterday. The HSBC China Manufacturing Purchasing Managers' Index, slanted toward private and export-oriented companies, registered 49.6 last month, up from January's 48.8. In both surveys, a reading of 50 separates expansion from contraction. "Extending the rising stream for a third month, the official PMI data further strengthens our judgment that China's economy is stabilizing," said Zhang Liqun, a federation analyst. "But we should still keep alert as uncertainties in exports and investment may continue to rock the way ahead." Component indices in the official PMI showed new orders 0.6 up to 51, while production gained 0.2 to 53.8. Trade recovered a little from January, with new export orders rising 4.2 to 51.1 and imports adding 3.9 to 50.8. "The detailed breakdown is in line with our expectations of a broad-based seasonal pickup after the Chinese New Year and the economy remaining on track for a soft landing," said Chang Jian, a Barclays Capital economist. "In particular, the import index rose above 50 for the first time since October, which indicates some resilience in underlying demand." Chang said the official PMI data should provide some comfort regarding the extent of the economic slowdown, especially after January's economic data, which was weaker than expected. He anticipated that authorities would keep policies largely stable, or allow them to ease at a measured pace. In the HSBC survey, however, new export business decreased at its fastest pace since June 2011, remaining below 50 and indicating still harsh conditions for private firms. "Growth remained flat on weakening new order intakes," said Qu Hongbin, chief economist for China at HSBC. "The marginal improvement in the HSBC PMI is led by quickening production and a recovery of hiring after the Chinese New Year. But deteriorating external demand is adding more downside risks to growth in the absence of a strong comeback in domestic demand," Qu said. He expected the central bank to step up policy easing as inflation pressures recede. A grim trade outlook may prompt policy-makers to reduce interest rates twice in the second and third quarter, the State Information Center, a research unit under the National Development and Reform Commission, said on Tuesday. The center also predicted China's inflation may weaken to around 3.3 percent this year, allowing the country to carry out more policy easing to support growth. China allowed commercial banks to reduce their reserves last month, a mild easing after economic growth slowed to 8.9 percent in 2011's final quarter, the weakest in two and a half years.