China’s manufacturing activity continued to contract in February as export orders weakened, HSBC said, in a further sign that the eurozone crisis and US weakness are hurting demand.
HSBC’s preliminary purchasing managers index rose to 49.7, the highest level in four months, from a final reading of 48.8 in January, the British banking giant said in a statement, released on Wednesday.
But while the figure marked an improvement it still remained below 50, indicating the sector is contracting. HSBC will release a final reading early next month.
“With a meaningful rebound of domestic demand not in sight, external weakness is starting to bite, adding more downside risks to growth,” HSBC Chief Economist Qu Hongbin said.
Qu urged the government to step up efforts to ease credit restrictions, which would boost lending and spur activity in the export-driven economy.
On Saturday, China’s central bank cut the reserve requirement ratio for banks, effectively increasing the amount of money they can lend, for the second time in three months as officials moved cautiously to open the credit valves.
The world’s second largest economy expanded by an annual 9.2 percent last year, narrowing from 10.4 percent in 2010, and is widely expected to slow further this year, but most analysts do not expect to see a sharp reduction.
Beijing has pledged to “pre-emptively adjust and fine-tune” economic policy to prevent a hard landing that could trigger widespread job losses in the key manufacturing sector and trigger social unrest.
But policymakers will likely move slowly for fear of reigniting inflation, which reached a more than three-year high of 6.5 percent in July, and property prices, which have risen out of the reach of many ordinary Chinese.