China February factory growth cools to 5-month low

Official PMI falls to 50.1, nevertheless signals mild economic recovery is taking hold in China

Growth in Chinese factories cooled in February to a five-month low after domestic and foreign demand slackened, an official government survey showed on Friday, missing market forecasts and underscoring China's patchy economic recovery.

The official Purchasing Managers' Index (PMI) eased to 50.1 after seasonal adjustments, the National Bureau of Statistics said, down from January's 50.4 and the weakest since September 2012.

The index nevertheless signals that a mild economic recovery is still taking hold in China. The 50-point level separates expanding activity from contraction versus the previous month in China's vast factory sector.

"February's PMI continued to tread lower, indicating economic growth is set to shift from a rebounding trend to that of stabilisation," said Zhang Liqun, an analyst at Development Research Center, a state think-tank.

New orders and new export orders both fell in February from the previous month, the data showed, indicating soft domestic demand was a source of additional headwinds last month for Chinese factories already battered by lethargic foreign sales.

New orders fell to 50.1 from January's 51.6, while new export orders retreated to 47.3 from 48.5 the month before.

But some economists attributed the pull-back in data to distortions arising from the Lunar New Year holiday which fell in February, even though the statistics agency says the PMI has been seasonally adjusted.

"There is a lot of noise in the January to February data," said Tim Condon, head of Asian economic research at ING in Singapore. "When it settles down we expect the data will reveal that industrial production is growing around 10%."

Condon, who has a more upbeat view than the market consensus of the world's second-largest economy in 2013, predicts it would grow 9% this year. Economists polled by Reuters in January expect a median growth rate of 8.1%.

Economists polled by Reuters had forecast an outcome of 50.2 for February's PMI on the back of tepid overseas demand for Chinese goods.