China Factories See Sluggish Start in 2012: HSBC PMI

China's manufacturers started 2012 in a sluggish mode, suggesting Beijing will keep pulling pro-growth policy levers despite some early signs that a downward drift in factory activity is slowing, a survey of purchasing managers showed on Friday.

ChinaFotoPress | Getty Images News | Getty Images

The HSBC flash manufacturing purchasing managers index (PMI), the earliest indicator of China's industrial activity, stood at 48.8 in January, a slight improvement on the 48.7 final reading of the December index that put the indicator at a three month high.

The reading was still below the 50 level that demarcates expansion from contraction — a level it has languished below for most of the last seven months — though turnarounds in sub-indexes measuring new export orders, backlogs of work and stocks of finished goods were all signs of strengthening activity.

The new export orders sub-index bounced to 51.1 from a three-month low, a key indicator of hitherto deteriorating demand from China's big trading partners in the European Union and the United States that helped drag growth in the world's second-biggest economy down to its lowest in 2-1/2 years in the final quarter of 2011.

New orders overall ticked to a three-month high, but failing by a narrow margin to get back above the 50 level.

Areas of concern for investors linger beside the bright spots though, with the overall output index signaling contraction at a faster rate in January than December — a trend also reflected in the stocks and quantities of purchases.

The survey did nothing to turn Qu Hongbin, chief China economist at HSBC, from the view that more fine-tuning of economic policy should be expected from the Chinese government.

"The third consecutive below-50 reading of the manufacturing PMI suggested that growth is likely to moderate further," he said in a statement accompanying the index.

"Despite the upside surprise of industrial production growth in December, the ongoing slowdown of investment and exports implies more headwinds to growth and likely destocking pressures for manufacturers in the coming months. We expect more policy easing to stabilize growth," Qu said.

Slower Growth Expected

Economists forecast a fifth-successive quarter of slower Chinese GDP growth in the first three months of 2012, easing further from the 8.9 percent of Q4 2011. Many expect the year ahead to deliver the slowest overall growth in a decade.

The pullback in activity has fuelled expectations that the government will take more forceful measures to bolster growth and save jobs, beyond the so-called fine-tuning it began to implement in October, in the face of a festering European debt crisis and a sharp slowdown in the domestic property sector.

Beijing reduced the amount of cash that banks have to hold as reserves in November for the first time in three years in a bid to shore up cooling economic activity and maintain a steady supply of credit to companies and consumers.

That 50 basis point cut to 21 percent is forecast by economists to be followed by up to 150 bps more throughout the course of 2012.

The January readings from the HSBC flash PMI — based on up to 90 percent of total responses to a monthly survey — are likely to have been muddied by the Lunar New Year holidays, which occur earlier than usual in 2012.