Uptick in official PMI 'signals stabilization'

China's manufacturing sector expanded in January, as indicated by a slight rise in the Purchasing Managers' Index (PMI) to 50.5 from 50.3 in December.

The rise was a signal that the pace of economic moderation was stabilizing, analysts said, and further easing policies might soon be announced.

The official PMI, which was jointly released by the National Bureau of Statistics (NBS) and the China Federation of Logistics & Purchasing (CFLP) for the first time on Wednesday, unexpectedly exceeded the consensus forecast of 48.

The uptick in the PMI was mainly supported by growth in new orders and manufacturing output.

The PMI is a preliminary reading on the nation's manufacturing activity, with 50 demarcating expansion from contraction.

The sub-index of new orders rose to a three-month high of 50.4 in January from a contractionary reading of 49.8 in December.

The increase might reflect consumer spending for the Lunar New Year holiday, which began on Jan 23, said a report on the CFLP's website.

Despite the improvement in factory output, the index for export orders last month dropped to 46.9 from 48.6 in December, undermined by the situation in Europe, which is struggling with a sovereign debt crisis.

"External shocks may bring more threats in the coming months," although China's economic deceleration was likely to stabilize, said Zhang Liqun, a researcher with the Development Research Center of the State Council.

Ding Mingquan, who runs a swimsuit factory in Jinjiang of East China's Fujian province, said that his new export orders from Europe and the United States for the first half had fallen about 15 percent year-on-year.

"Only by improving production capacity and creating new products can we withstand shocks in the future," said Ding.

Guangdong weakens

The PMI for export powerhouse Guangdong province declined to 43.7 in January from 50.5 in December. It was the first time that the index had dropped below 45 in more than a year.

Pressured by the problems in Europe, a stronger yuan and rising labor costs, many manufacturing companies in Guangdong closed or shifted to other industries in 2011, analysts said.

Zhang said that the world's second-largest economy might cool further this year amid the global gloom.

A report from JP Morgan (Hong Kong) Chase Bank said that first-quarter GDP would likely slow to 8.2 percent, compared with 8.9 percent in the fourth quarter and 9.1 percent in the third quarter.

Zhu Haibin, the chief China economist with JP Morgan, said that a strong economic recovery might emerge in the second half, "benefiting from the effects of domestic policy easing and the improvement in global economic environment".

The economy might also get a boost from fiscal policy, as the authorities would increase government expenditure and adopt structural tax cuts to expand sectors, including affordable housing, social welfare and infrastructure investment, Zhu said.

HSBC Holdings PLC released a separate index on Wednesday that portrayed quite a different scenario.

The bank's PMI came in at 48.8 for January, the third consecutive below-50 reading, compared with 48.7 in December, showing a continued contraction in the nation's manufacturing sector.