China's manufacturing activity is still declining, even though a gauge of the sector rose to a fourth-month high in February, HSBC Holdings PLC said Wednesday, indicating that businesses are facing challenges amid the uncertain global economy.
The preliminary reading of HSBC's Purchasing Managers' Index (PMI), a gauge of performance in the manufacturing industry, rose to 49.7 from January's reading of 48.8, the bank said in a report e-mailed to the Global Times yesterday.
A PMI reading above 50 indicates growth, while a reading below 50 indicates contraction.
"Growth remains headed for a slowdown, despite the marginal improvement in the headline flash PMI led by quickened production after the lunar Chinese New Year," said Qu Hongbin, HSBC's chief economist for China.
"With a meaningful rebound of domestic demand not in sight, external weakness is starting to bite, adding more downside risks to growth. The central bank, after delivering this year's first RRR cut, should step up policy easing as inflation pressures continue to ease," he said.
"Following marginal improvement of the data in January, HSBC's February reading showed the economy is picking up. But the data does not reveal that much about the overall economic prospects for the whole year as China's monthly macro data in January and February are distorted by the timing of the Spring Festival," said Li Xunlei, chief economist of Haitong Securities.
China's economy expanded by 9.2 percent last year, down from 10.4 percent in 2010, and is widely expected to slow further this year.
HSBC's new export orders sub-index dropped to 47.4 from 50.4 in January, while overall new orders were flat at 49.1, a level that indicates they were declining, the report said.
China's imports and exports fell in January at their fastest rate since 2009.
To boost lending, China cut its reserve requirement ratio (RRR) by 50 basis points to 20.5 percent Saturday, the second 50 basis point cut in the RRR since November. The move released about 400 billion yuan ($63.52 billion) that could be used for bank lending.
"Bank lending in the next six months is likely to continue to grow, which will benefit the replenishing of inventories and also serve as the major engine driving the economy in the first two quarters of the year. February PMI is expected to continue to rise to reach 51.0 percent," Guotai Junan Securities said in a research report.
The final results of the HSBC PMI survey and those of the government's PMI survey will be released on March 1.