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China manufacturing index hits seven-month low: HSBC

BEIJING -- A key index of Chinese manufacturing fell further in February to hit its lowest level in seven months, HSBC said Thursday, in a sign of diminishing strength in the world's second-largest economy.

The British banking giant's preliminary reading for its purchasing managers' index (PMI) for China, which tracks manufacturing activity in factories and workshops, fell to 48.3 this month.

That marked a further tumble from the final reading of 49.5 in January, when the figure showed contraction for the first time in six months.

The index is a closely-watched gauge of the health of the Asian economic powerhouse. A reading above 50 indicates growth, while anything below signals contraction.

Qu Hongbin, HSBC economist in Hong Kong, blamed February's worsening figure on decreasing new orders and production at Chinese factories, and called on the government to adjust policy to support growth.

“The building-up of disinflationary pressures implies that the underlying momentum for manufacturing growth could be weakening,” he said in a statement accompanying the data.

“We believe Beijing policy makers should and can fine-tune policy to keep growth at a steady pace in the coming year.”

China's inflation rate remained subdued at 2.5 percent year-on-year in January, official data showed, arousing economists' concerns that the figure suggested weak domestic demand and murky growth prospects.

Liquidity Crunches

But Julian Evans-Pritchard, an analyst with research firm Capital Economics, argued that broader indicators showed the labor market remained healthy and that the weakness in manufacturing was an acceptable result for Beijing.

“Looking ahead, there are no signs of a shift towards loosening policy,” he wrote in a research note.

Compared to the past, when authorities were quick to throw cash to stimulate a slowing economy, they have recently been taking a largely tight-fisted approach.

Two liquidity crunches last year occurred in part because of official eagerness to impose tighter discipline over banks amid burgeoning debt levels.

Meanwhile, growth in fixed asset investment, a measure of government spending on infrastructure, has been slowing steadily since August.

Some analysts expressed caution over this month's preliminary survey, as data was collected from February 12-18 and many Chinese companies did not reopen until the middle of this month after the lengthy Lunar New Year holiday.

China posted economic growth of 7.7 percent in 2013, the same as 2012 — which was the worst rate of growth since 1999 — although it exceeded the government's target of 7.5 percent for the year.

Analysts are expecting economic expansion to slow to 7.5 percent this year, as Chinese leaders have vowed to change the country's growth model so that consumers and other private actors play the leading role, rather than huge and often wasteful state investment.

Both exports and imports recorded robust jumps last month, despite the Spring Festival holiday season.

But analysts skeptical of the data, feared that the unusually strong performance might be a repetition of what happened around the middle of last year, when traders faked reporting to channel money into the country to capitalize on the strengthening of the yuan.

HSBC is scheduled to publish its final PMI reading for February on March 3.

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