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People's Daily Online>>China Business

PMI may reflect production drop

By Wang Yanlin (Shanghai Daily)

17:02, February 23, 2012

China's manufacturing activities may contract for a fourth consecutive month in February as export orders fell sharply, a preliminary reading of the HSBC Purchasing Managers' Index showed yesterday.

This month's HSBC Flash PMI, the earliest available indicator of China's industrial sector, was at 49.7. It reached a four-month high but was still less than 50. A reading under 50 reflects contraction. But the pace was faster than the final reading of 48.8 in January. February's final reading will be released on March 1.

Qu Hongbin, chief economist for China at HSBC, said that despite the marginal improvement in the headline Flash PMI, growth remains elusive.

"With a meaningful rebound in domestic demand not in sight, external weakness is starting to bite, adding more downside risks to growth," Qu explained.

He suggested the People's Bank of China should accelerate policy easing as inflation pressure may continue to weaken.

Chang Jian, an economist at Barclays Capital, said the PBOC will continue to ease at a measured pace, in line with M2 growth, a broad measure of money supply, of 14 percent this year, compared with 13.6 percent in 2011.

Last weekend, the PBOC announced a cut in the reserve requirement ratio effective Friday, which will unlock about 410 billion yuan (US$65.1 billion) to the banking system

China's Consumer Price Index, the main gauge of inflation, rebounded to a three-month high of 4.5 percent in January. But analysts predicted the CPI to moderate, making for more policy easing.

"China is cautious about policy changing right now, but the country needs to further boost money supply to stimulate the domestic market amid a grim global business outlook," said Xue Jun, an analyst at CITIC Securities Co.

Of the component indices in the Flash PMI, new export orders fell below 50.

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