China official PMI hits eight-month low, adds to slowdown signs

The official PMI edged down to 50.2 in February from January's 50.5

Activity in China's factory sector slowed to an 8-month low in February, a government survey showed, reinforcing signs of a modest slowdown in the economy as demand weakens.

The official Purchasing Managers' Index edged down to 50.2 in February from January's 50.5, the National Bureau of Statistics said on Saturday, just ahead of market expectations of 50.1.

A PMI reading above 50 indicates expanding activity while one below that level points to a contraction.

A preliminary survey released last week by HSBC and Markit Economics showed that the factory sector activity hit a seven-month low of 48.3 from 49.5 in January.

The index for new orders dropped below 50 and employment reached its lowest point since the global financial crisis.

The new orders sub-index in the official PMI China fell to a 8-month low of 50.5 in February from 50.9 in January and the sub-index for export orders fell to 48.2 last month, also a 8-month low, from 49.3 in January.

"Judging from market demand and production in some industries, we expect economic growth to remain steady in the future," said Zhang Liqun, an economist at the Development Research Centre, which helps compile the PMI.

"We should fully consider possible risk factors and further improve macroeconomic policy reserves to help consolidate the steady trend in economy growth," he said.

The official PMI, which is weighted towards large and state-owned firms, has usually been rosier than the private survey, which covers more smaller and private companies. The official PMI has stayed above the 50-point level since October 2012.

The China report kicks off a round of monthly reports on the health of the global manufacturing industry, with similar surveys from the rest of Asia, Europe and the United States expected on Monday.

Concerns Over US, China

In recent weeks, investors have been more concerned that the Chinese and US factory sectors are dragging on global activity, even as European manufacturers enjoyed a solid start to the year.

Although both the official and HSBC PMI surveys are seasonally adjusted, some analysts cautioned against reading too much into last month's data, given the possible impact from the long Lunar New Year holiday, which began on January 31 and covered early February. Many plants and offices shut for extended periods during the festival.

To smooth out seasonal distortions, the statistics bureau is scheduled to release combined January-February growth figures on factory output, fixed-asset investment and retail sales in March.

Despite signs of firmer global demand, a drive by Chinese regulators to rein in the shadow banking sector could hurt investment growth, while Beijing's continuing anti-corruption campaign could hurt consumption, analysts say.

On Monday, the statistics bureau will release the official services PMI at 0100 GMT, ahead of the final HSBC/Markit PMI due out at 0145 PMI.

China's annual economic growth slowed to 7.7% in the fourth quarter from 7.8% in the previous quarter, and economists polled by Reuters expected growth to slow further to 7.6% in the first quarter of 2014.

In 2013, China's economy grew 7.7%, steady from the previous year and fractionally above market expectations of 7.6%, which would have been the slowest since 1999.

Premier Li Keqiang is widely expected to stick with the 7.5% economic target for 2014 at the annual parliament meeting due to open on March 5.