March 1, 2012 / 1:25 AM / 8 years ago

UPDATE 1-China PMI up as new export orders expand

* Feb official PMI at 51.0 vs 50.5 in Jan

* New orders pick up, index rises to 51.0

* New export orders accelerate, index gains to 51.1

By Kevin Yao and Aileen Wang

BEIJING, March 1 (Reuters) - China’s factory sector grew more than expected in February as export orders expanded for the first time in four months, a government survey showed on Thursday, supporting hopes the world’s second-biggest economy can avoid a hard landing.

China’s official purchasing managers’ index (PMI) rose to 51.0, above expectations for a reading of 50.7 and higher than 50.5 in January.

It was the highest PMI since 51.2 in Sept, the figures from the National Bureau of Statistics showed. A PMI above 50 signals expansion, while below 50 points to contraction.

The HSBC Flash PMI, the earliest indicator of China’s industrial activity, hit a 4-month high of 49.7 in February, but new export orders shrank the most in 8 months as global demand weakened.

The government’s new export orders sub-index rose to 51.1 in February, indicating expansion for the first time in four months and the highest reading since 51.1 in May 2011. New export orders were shrinking in January, when the index was 46.9.

New orders overall rose to 51.0 from 50.4.

“The February PMI continued to pick up, further confirming a trend that the economy is stabilising,” Zhang Liqun, a researcher with the Development Research Centre of the State Council, said in the official statement.

“Different from January, last month’s expansion in the manufacturing sector is mainly driven by heavy industries. But the export and investment demand is expected to ease in the coming months, albeit at a slower pace. Input price is accelerating evidently, a reflection of rising imported inflation,” Zhang said.

The official PMI, which is weighted more towards big state firms, generally paints a rosier picture of Chinese factories than the PMI produced by HSBC, which includes small private firms that have been hit harder by credit curbs and weaker demand.

Still, China’s economy faces formidable headwinds as exports falter due to weakening demand in the United States and Europe, alongside a downturn in the once red-hot property sector in response to tightening steps by Beijing.

China’s annual economic growth is widely expected to slow to just over 8 percent in the first quarter from 8.9 percent in the previous quarter, the fifth consecutive quarter of slowdown.

Many analysts expect the central bank to continue its steady policy easing by cutting the amount of cash that banks must hold as reserves to crank up credit to ward off sharper growth slowdown.

China announced a cut in its reserve requirement ratio (RRR) by 50 basis points to 20.5 percent on Feb 18, releasing about 400 billion yuan ($63 billion) that could be used for bank lending. It was the second 50-bp cut in the RRR in three months.

The deep-pocketed government has also cut taxes for small firms, which are vital for generating economic growth and jobs, to help them cope with a credit squeeze and weaker exports.

Longer-term, China needs to change its economic model, which for years has relied on the export sector to drive growth, the World Bank said in a report this week. The government must relax its grip on industry and move towards free markets, it said.

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