China's manufacturing growth hit 8 month low

China's manufacturing growth retreated to an eight-month low in February and slowed for the third month running, official data showed on Saturday. China's purchasing managers' index (PMI) for the manufacturing sector dropped to 50.2 percent in February, said a statement jointly released by the National Bureau of Statistics (NBS) and the China Federation of Logistics and Purchasing. The index showed the manufacturing sector was expanding, but the growth rate was slowing down, said Zhao Qinghe, a senior analyst with the NBS. A reading below 50 indicates contraction, while a reading above 50 signals expansion. "The 50.2 reading is above the market consensus of 50.1," said Lu Ting, chief China economist with Bank of America Merrill Lynch. Zhao attributed the decline to the Spring Festival holiday, when most companies suspended production and workers went back home for the week-long holiday. Lu echoed this view. The impact the holiday had is further evidenced by the drop in the employment sub-index to 48.0 percent in February from 48.2 percent in January, despite employers arguing of a labor shortage after the Spring Festival holiday, Lu said. In February, the sub-index for production stood at 52.6 percent, down 0.4 percentage points from January, while the sub-index for new orders lost 0.4 percentage points to 50.5 percent, said the statement. Two sub-indexes on foreign trade both declined. The sub-index for new export orders edged down to 48.2 percent and the import sub-index dropped to 46.5 percent. In contrast, the sub-index for production and business expectation climbed to 61.8 percent, indicating strengthening confidence for future economic growth among enterprises. Markets are likely to respond negatively to the reading but the impact could be limited and policies are unlikely to be changed by these distorted PMI readings, Lu said. The news comes after the depressing HSBC flash manufacturing PMI earlier this month. The HSBC/Markit China flash manufacturing PMI for February dipped to 48.3 from a final reading of 49.5 in January, indicating deteriorated manufacturing contraction. The HSBC flash PMI's drop could also be attributed to the impact of the holiday in early February as the index mainly covers smaller enterprises which are influenced more by the holiday, Lu said. The months with the Spring Festival holiday have seen PMI decreases in the past five years, except in 2012 when the monthly PMI went up from a "periodical" low in the previous month, according to the NBS statement. The manufacturing PMI in the months with the Spring Festival holiday was 52 in 2010, down 3.8 percentage points month on month; 52.2 in 2011, down 0.7 percentage points month on month; 50.5 in 2012, up 0.2 percentage points month on month; 50.1 in 2013, down 0.3 percentage points month on month; and 50.2 this year down 0.3 percentage points month on month, according to the statement. Zhang Liqun, a researcher with the Development Research Center of the State Council, said China's economy will remain steady but macro economic policies should be upgraded to guard against risks. China's economy expanded 7.7 percent year on year in 2013, above the official target of 7.5 percent. The government has yet to announce its 2014 growth target, which analysts widely expect to be set between 7 percent and 7.5 percent. Analysts expect further moderation as the focus of the authorities has now turned to forming a more sustainable model and pushing ahead with various reforms.