Manufacturing continues to decline
China’s economy continued to weaken in February with activity slowing in both the manufacturing and service sectors, according to the latest figures.
The official Purchasing Managers’ Index, a comprehensive gauge reflecting operational conditions in largely state-owned manufacturing companies, fell 0.4 points from January to 49 last month, according to the National Bureau of Statistics and the China Federation of Logistics and Purchasing, below the 50 mark that separates contraction from expansion.
It was the seventh consecutive month manufacturing had been below 50.
The official non-manufacturing PMI, a counterpart for the service sector, fell to 52.7 in February, down from 53.5 a month earlier.
Bureau analyst Zhao Qinghe said factors including production being suspended during the Spring Festival holiday, which also led to less demand, were major reasons for the continuing decline.
The manufacturing PMI’s component indexes showed production fell to 50.2 last month, down from January’s 51.4. New orders lost 0.9 points to 48.6, staying below 50 for the second straight month. The purchase volume of raw materials lost 1.1 points to 47.9, while employment retreated 0.2 points to 47.6, both worse than a year earlier.
“The overall performance was disappointing,” Zhao said. “But there were some positive signs such as a small rebound in the price of crude oil that led to higher sub-index measuring the costs of raw materials. Meanwhile, with the implementation of supportive policies, we have seen strengthened confidence among industrial companies.”
The price of raw materials rose 5.1 points to 50.2 last month, above 50 for the first time since August 2014.
Liu Ligang, chief economist at Australia & New Zealand Banking Group Ltd, said the figures suggested policy-makers may take further measures to manage an economic growth target of between 6.5 percent and 7 percent for 2016.
“The proactive fiscal policy will be needed to support investments and we expect the fiscal deficit could be increased to a range of 3 percent to 4 percent of the economic output in 2016, up from 2.3 percent in 2015,” Liu said.
Robert Subbaraman, chief economist of Asia (ex-Japan) at Nomura, said earlier that China needed to expand fiscal investments, but should be cautious not to slow industrial restructuring.
In line with the worsening performance of state-owned industrial companies, their private and export-oriented counterparts also reported weakening activity.
The Caixin China PMI, an indicator slanted toward private and export-oriented manufacturing companies, landed at 48 in February, a five-month low that was down from 48.4 in January, according to the Caixin magazine and research firm Markit.
He Fan, chief economist at Caixin Insight Group, said: “The government needs to press ahead with reforms, while adopting moderate stimulus policies and strengthening support of the economy in other ways to prevent it from falling off a cliff.”
China’s gross domestic product grew 6.8 percent in the fourth quarter of last year, concluding 2015 with a rate of 6.9 percent, the slowest growth in 25 years.