China's manufacturing activity improved at the fastest pace in five months in February backed by a strong rebound in exports orders, the latest survey by China Federation of Logistics and Purchasing (CFLP) showed Thursday.
The purchasing managers' index for the manufacturing sector improved for a third month in a row to reach 51 in February. Economists expected a modest rise to 50.8 from the January reading of 50.5.
A PMI reading above 50 indicates expansion of the sector, while a reading below 50 suggests contraction.
The index measuring new export orders rose to 51.1 from 46.9 in January. The index rose above the 50-mark for the first time in four months. Overall new orders index rose to 51 from 50.4.
Further, the production index rose to 53.8 percent from 53.6 in the previous month. Meanwhile, the purchasing price index increased notably by 4 percentage point to 54.
Detailed results of a survey by Markit Economics, which was also published today, showed that the manufacturing sector is still in negative territory with a PMI reading of 49.6 pointing to deterioration in activity at the fastest rate since June 2011.
The February reading was, nevertheless, higher than 48.8 in January. According to the survey, new export business fell at the fastest pace in eight months.
Commenting on the data, HSBC chief economist Hongbin Qu said that growth remained flat on weakening new order intakes. Despite the marginal improvement in the headline PMI, led by quickening production and a recovery of hiring after the Chinese New Year, deteriorating external demand is adding more downside risks to growth in the absence of a strong comeback in domestic demand.
"We expect the PBoC to step up policy easing efforts as inflation pressures recede," the economist added. Last month, 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 due to persistent inflationary pressures.
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