PMI down in February

By Li Qiaoyi

The purchasing managers' index (PMI) reached 52 in February, down 3.8 points from January, the China Federation of Logistics and Purchasing (CFLP) announced Monday.

The PMI, hitting a 12-month low, was much weaker than expected. "Overall, there remain lots of uncertainties, as China's economy is being transitioned from government-driven growth to independent, stable and sustainable growth," Zhang Liqun, a special analyst with CFLP, said in a statement the organization posted on its website Monday.

Of the 11 sub-indexes of the PMI, only the reading measuring the finished goods inventory was unchanged at 47.3, while other sub-indexes all reported a decline over the previous month.

The sub-indexes that measure output, new orders, quantity of purchases and input prices saw substantial declines exceeding six percentage points.

Economists attributed the sharply declining PMI mostly to the Chinese Lunar New Year falling in February.

"Due to possible statistical noise, we are waiting until the March report before making conclusive comments on this sharp fall in the PMI," Sun Mingchun, chief China economist with Nomura Securities in Hong Kong, wrote in a research note Monday.

However, the PMI reading was above 50 for the 12th consecutive month, signaling that the manufacturing sector continued to expand. Fourteen of 20 industries surveyed for the PMI recorded readings above 50.

Economists Song Yu and Qiao Hong of Goldman Sachs in Hong Kong said in a research note Monday that strong real economic growth is demonstrated by the more reliable electricity data consis-tently pointing to a year-on-year growth rate of around 30 percent.

"This type of strong activity growth is consistent with the loose monetary conditions as the amount of liquidity injected into the real economy remains large despite apparent tightening measures including the reserve requirement ratio (RRR) hikes," the research note said.

February loan growth is due to be released by the central bank around March 11.

Some industry analysts expect last month's new loans to total about 700 billion yuan ($102.53 billion), following January's 1.39 trillion yuan ($203.6 billion).

Nomura's Sun maintained a forecast of real gross domestic product (GDP) growth of 10.5 percent this year.

"Should the decline prove to be the beginning of an economic slowdown – possibly the result of credit tightening measures in January – we judge it will likely reduce the need for more aggressive government policy tightening," he said.

The HSBC PMI released Monday also showed a decline over January, but its reading differed from the official PMI co-compiled by the CFLP and the National Bureau of Statistics.

The official PMI surveys a larger sample size, mostly focusing on large- and medium-sized State enterprises, while the HSBC PMI covers more small- and medium-sized non- State enterprises.

The HSBC PMI reported an increase in new export orders in February, hitting a new, nearly five year high, while the same sub-index of the official PMI was down 2.9 points.

Such a contrast between two PMI readings may indicate a change in the driving force behind China's economic growth, said Lu Zhengwei, a senior economist with Industrial Bank.