Initial data on China's manufacturing activity indicated a sharp decrease in February, raising concerns over the recovery of the Asian dragon. The deceleration was driven by weak global demand for China's exports and the timing of the week-long Lunar New Year holiday. A survey by HSBC and Markit Economics showed that China's manufacturing expanded at the slowest rate in four months.
Flash China manufacturing PMI
On the 25th of February, HSBC Holdings Plc and Markit Economics released the preliminary reading of a Purchasing Managers' Index, showing that it dramatically slumped to 50.4 in February from the January's reading of 52.3. The decrease in China's manufacturing activity in February was surprising as analysts projected a reading of 52.2 for the month. Yet, China still saw its manufacturing expand in February despite the drop.
It is worth mentioning that it is only a preliminary reading (the Flash PMI) which is based on up to 90 percent of responses to a study of approximately 420 companies. As for China's manufacturing activity in February, data was gathered between 12th of February to 21st of February.
Qu Hongbin, chief China economist for HSBC in Hong Kong, underlined that the reading of flash China's manufacturing PMI was above the critical line, adding that the world's second economy's economic recovery was "intact, as indicated by the still-expanding employment and the recent pickup of credit growth." However, the HSBC final reading of China's manufacturing activity for February will be released on the 1st of March. The same day the official data is to be published as well.
Certainly, figures on exports were disappointing as a key sub-index showed that new export orders dropped to 49.8 from 50.5 in January. Moreover, collected data illustrated the ongoing shift in directions in China's new exports orders. China still feels that crisis-hit Europe is struggling.
However, the important gauge showed that domestic demand was in pretty good shape. This trend is in line with authorities' goals as the government tries to switch to an economy which is not so dependent on external factors.
Reactions on Flash PMI
Data on China's manufacturing activity in February was welcomed with mixed feelings. Some analysts are strongly convinced that the preliminary reading of China's manufacturing PMI casts a shadow on highly anticipated economic recovery of the world's second economy. They underlined that latest data was a clear signal that Asian dragon's fundamentals were not as strong as initially expected.
But there are also those analysts who are not big fans of Flash PMI for February, underlining that figures were seriously distorted by the week-long Lunar New Year holiday. In general, PMI is not the best economic gauge when it comes to this kind of distortions.
However, HSBC Holdings Plc and Markit Economics underlined that the timing of the latest holiday slightly distorted the results. Nonetheless, analysts of HSBC are strongly convinced that recovery growth was intact in the month, pointing at increasing employment and an acceleration in credit growth.
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