China factory activity shrinks for 4th month -HSBC flash PMI

BEIJING Tue Feb 21, 2012 9:30pm EST

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BEIJING Feb 22(Reuters) - China's manufacturing sector contracted in February for the fourth straight month as new export orders dropped sharply in the face of the euro-area debt crisis, the HSBC flash purchasing managers index showed on Wednesday.

The PMI, the earliest indicator of China's industrial activity, rose to a four-month-high at 49.7 in February from 48.8 in January. The PMI has been below 50, which demarcates expansion from contraction, for most of the last eight months.

The survey shows the sector remained sluggish in February, underlining Beijing's decision on Saturday to cut bank reserves for the second time in three months.

"Growth remains on track for a slowdown, despite the marginal improvement in the headline flash PMI led by quickened production after the Chinese New Year," Hongbin Qu, China Economist at HSBC, said.

"With a meaningful rebound of domestic demand not in sight, external weakness is starting to bite, adding more downside risks to growth. The PBOC, after delivering this year's first RRR cut, should step up policy easing as inflation pressures continue to ease."

The new export orders sub-index dropped to 47.4 in February from 50.4 in January as the European debt crisis cast a shadow over Chinese exports.

China's trade ministry is working on detailed policies, including more tax rebates to try to boost the country's exporters.

An output sub-index rose to 50.1 in February from 47.6 in January. New orders were flat at 49.1.

The flash PMI is based on up to 90 percent of total responses to a monthly survey and is subject to revision in the final HSBC PMI scheduled for release on March 1.

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