Output growth hits 4-month low, says HSBC

Workers manufacture baby strollers at a company in Zaozhuang, Shandong province. The HSBC flash purchasing managers' index for February slipped to 50.4, the lowest in four months. [Photo / China Daily]

China's manufacturing production growth hit a four-month low in February, dented by the Chinese New Year holiday and continued weakness in external demand, banking giant HSBC Holdings Plc said on Monday.

A prediction saw the manufacturing Purchasing Managers' Index retreat to 50.4 in February from 52.3 in January, but still showing the sector was expanding, HSBC said.

A reading above 50 indicates expansion and it was the fourth consecutive month of growth, after 12 months of contraction.

"It means the underlying strength of China's recovery remains intact, as indicated by still-rising employment and the recent pickup of credit growth," said Qu Hongbin, HSBC's chief economist for China and co-head of Asian economic research.

The preliminary reading was released by the bank a week before the official data by the National Bureau of Statistics, and is the earliest available indicator of conditions in the manufacturing industry.

The moderation in HSBC's PMI prediction was mainly led by weaker growth in new orders, with the relevant sub-index declining to 51.2 in February from January's 53.7, the lowest level for three-months.

Another sub-index showed new export orders fell to 49.8 this month, compared with 50.5 a month earlier, and indicating that exports have turned to contraction from modest growth, according to HSBC.

Sun Yingli, general manager of Shanghai Manlang Textile Co, a garment manufacturer relying mainly on orders from Europe and Japan, said: "Actually, orders have grown this year, maybe due to economic recovery in overseas markets, but costs are surging and we have had to give up some orders to keep the profit margin."

Sun said prices for 90 percent of raw materials are rising, in addition to higher labor costs.

"Everything - thread, yarn, dyes - has become more expensive. We can do nothing but shrink the production scale to survive," she said.

Qu said that over the past three years, the average moderation of the PMI during the Chinese New Year months was 1.4 points, during which most manufacturing production takes a week's break.

He said the manufacturing sector remains optimistic, suggested by the continuous expansion of raw material purchases.

"More importantly, robust labor market conditions should provide additional support to continued consumer spending growth in coming months."

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