China Feb official factory PMI seen shrinking for 7th month

BEIJING (Reuters) - Activity in China’s vast manufacturing sector likely shrank for a seventh straight month in February, a Reuters polled showed, adding to signs that business conditions in the world’s second-largest economy are continuing to decelerate.

Employees work along a production line at a factory of Dongfeng Nissan Passenger Vehicle Co. in Zhengzhou, Henan province, China, November 12, 2015. REUTERS/Stringer

The official manufacturing Purchasing Managers’ Index (PMI) is expected to dip to 49.3 in February from 49.4 a month earlier, according to a median forecast of 23 economists in a Reuters poll. January’s reading was the weakest since August 2012.

A reading below 50 points suggests a contraction in activity, while a reading above indicates an expansion on a monthly basis.

The continued weakness comes despite a massive injection of credit from Chinese banks in January, which has been widely attributed to a government push to head off risks of a sharper economic slowdown.

Banks dished out a hefty 2.51 trillion yuan ($384.23 billion) of new loans last month, although the full effect of the impetus will not be felt overnight.

“Funds injected in January should take some time before making a positive impact on the real economy,” said Zhang Cheng, an analyst at GF Development Bank in Shanghai.

Questions remain, however, over whether many Chinese factory owners are in any mood to take on new debt to expand, with persistently sluggish demand at home and abroad leaving them with significant idle capacity already.

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Top officials have made reducing overcapacity, particularly in “rust-belt” heavy industries, one of their key policy goals in 2016, but such a move would risk massive layoffs and saddling banks with loan defaults in the short-term, even if it promises greater long-term dividends.

Analysts also cautioned that Chinese economic trends can be distorted in January and February by the long Lunar New Year holidays, when many businesses typically scale back operations or close for lengthy periods of time. That will leave global investors waiting for March data for a clearer picture of the health of the economy.

China’s industrial output will stabilize and is expected to grow around 6 percent in 2016, the Ministry of Industry and Information Technology said on Thursday, slightly lower than the 6.1 percent recorded in 2015.

China’s top leaders reiterated a pledge on Monday to keep economic growth within a reasonable range this year while maintaining a pro-active fiscal policy and prudent monetary policy.

Weighed down by sluggish demand, overcapacity, cooling investment and a sluggish property market, the economy grew 6.9 percent in 2015, its weakest in a quarter of a century, and economists see growth cooling further to 6.5 percent this year.

Some market watchers believe real growth levels may already be much weaker.

The official manufacturing PMI data will be released on March 1, along with the official services PMI.

The Markit/Caixin factory PMI, a private and separate gauge of manufacturing data, will also be released on March 1.

($1 = 6.5325 Chinese yuan renminbi)

Reporting By Winni Zhou and Nicholas Heath; Editing by Kim Coghill