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China's factories seen posting seventh month of modest growth in Feb

Reuters

BEIJING (Reuters) - Activity in China's manufacturing sector likely grew modestly for the seventh month in a row in February as resources prices extended a rapid rally and on signs of improving global demand for Chinese exports, a Reuters poll showed.

Signs of sustained solid growth could give authorities more confidence to act as they cautiously move to contain risks from a mountain of debt which has built up after years of debt-fueled stimulus.

The official manufacturing Purchasing Managers' Index (PMI)probably edged down to 51.1 in February from January's 51.3, but remained well within positive territory, according to a median forecast of 33 economists in the Reuters poll.

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

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The central bank raised key short-term interest rates in late January and early February, in a further sign of policy tightening as the economy shows signs of steadying.

While the rate increases were modest, they reinforced views that Chinese authorities are intent on both containing capital outflows and reining in risks to the financial system.

But signs that momentum may be slowing means policymakers will likely tread carefully with any tightening as they balance increased oversight of risky activity with maintaining strong growth.

China's top leaders said last week that the country must maintain economic stability to ensure a successful party congress, a key meeting later this year where President Xi Jinping will look to cement his grip on power.

But analysts warned the official factory and services sector readings on Wednesday could be distorted by the timing of the long Lunar New Year holidays, which started on Jan. 27. Many factories and offices close for a week or more.

Readings on price trends will be closely watched for clues on whether inflation pressures are growing, after consumer prices and producer prices both rose more than expected in January.

A sustained pick-up in inflation could bolster expectations of further tightening by the People's Bank of China (PBOC), though consumer prices so far remain well within the central bank's comfort zone.

China's iron ore and steel prices hit multi-year highs last week, underpinned by expectations that strong infrastructure spending would continue to spur demand for building materials.

Investors will also be looking for signs of further growth in export orders. Shipments rose more than expected in January following a dismal performance in 2016, but worries of a rise in U.S. trade protectionism are clouding the outlook longer-term.

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

The private Caixin/Markit PMI survey will also be published on March 1.

Analysts expect the Caixin PMI, which focuses more on small and mid-sized firms, to come in at 50.8, down slightly from December's reading of 51.0.

(Reporting by Elias Glenn; Editing by Kim Coghill)

 
 
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