China Manufacturing Sector Contracts For Fourth Month

(RTTNews) - China's factory activity shrank for a fourth consecutive month in February, as weak domestic demand as well as external weakness added downside risks to growth, a survey by Markit Economics revealed Wednesday.

The rate of contraction in the manufacturing activity, however, eased with the HSBC flash manufacturing purchasing managers' index rising to a four-month high of 49.7 in February from 48.8 in January. Nevertheless, with the reading being below 50, the sector is experiencing contraction.

The manufacturing output index was also at a four-month high of 50.1, bouncing back from 47.6 in January.

While output remained broadly unchanged, new orders continued to contract. New export orders shrank in February following an improvement in the previous month.

Growth remains on track of slowdown, despite the marginal improvement in the headline flash PMI led by quickened production after the Chinese New Year, HSBC chief economist Hongbin Qu said.

"With a meaningful rebound of domestic demand not in sight, external weakness is starting to bite, adding more downside risks to growth," the economist said, adding the People's Bank of China after delivering this year's first RRR cut, should step up policy easing as inflation pressures continue to ease.

Input prices remained unchanged during the month, while output prices continued to fall, albeit at a moderate pace, according to the survey.

Last week, the People's Bank of China decided to cut the banks' reserve requirement rate by 50 basis points for the second time in three months to boost lending amid sluggish economic growth.

The new CRR at 20.5 percent for large commercial banks will be effective from February 24. The Chinese economy expanded 8.9 percent in the fourth quarter of 2011, the slowest pace in more than two years, as a result of sluggish external demand and Beijing's past policy tightening to contain inflation and property prices.

Despite the slowdown in growth, the central bank refrained from an interest rate reduction. According to the latest official data, inflation accelerated for the first time in six months in January, triggered by higher spending during the Lunar new years holidays.

Inflation rose to a three-month high of 4.5 percent year-on-year in January from the 4.1 percent in the previous month.

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