Manufacturing index shows weak recovery in January figures

China's manufacturing sector extended its mild recovery in January with weak foreign demand still crimping growth, reads two separate versions of the purchasing managers' index (PMI) released on Friday.

The indices, by Chinese authorities and HSBC, showed that factory output in the world's second-largest economy rose in January, but at very different speeds suggesting a patchy revival.

The official PMI compiled by the National Bureau of Statistics and the China Federation of Logistics and Purchasing showed the index reached 50.4 in January, a touch below December's 50.6.

The slower-than-expected index marks the fourth consecutive month it has stood above the 50-point level demarcating growth or contraction since October.

The HSBC PMI showed that growth among manufacturers quickened to a two-year high of 52.3, revised up from the preliminary reading of 51.9 and up 0.8 points from December, as domestic demand aided business.

The official PMI's small decline indicates that the output growth slowed down month-on-month and employment contracted faster, likely driven by deceleration of growth in export orders, Dariusz Kowalczyk, an economist at Hong Kong-based Crédit Agricole CIB, said in a research note sent to the Global Times Friday.

The sub-index for export orders stood at 48.5 for the official PMI and was just a shade above 50 in the HSBC survey.

Lu Ting, an economist with Bank of America Merrill Lynch said in a note sent to the Global Times that the markets won't significantly turn bearish as the index is often quite inaccurate around the Chinese New Year holidays.

The fact that the average of the two readings gained 0.3 points to reach 51.4 - a 20-month high - well mutes the negative reaction to the official index, Kowalczyk said.

The two PMI figures often do not move in tandem due to their different sampling methods.

The official PMI index favors large State-owned enterprises while the HSBC version relies on smaller private manufacturers.

Both surveys showed manufacturers were helped by firm domestic demand, including rising State investment and resilient private consumption.

But signs that the economic recovery - albeit gentle - was gaining strength were evident in surveys.

The economic cycle is peaking and GDP growth will slow from the second quarter of this year, Kowalczyk added.

The new orders sub-index in the official index inched up to a nine-month high of 51.6, while that for the HSBC PMI climbed to a two-year high of 53.7.

"We will see increasing signals of sustained growth recovery in the coming months," said Qu Hongbin, chief China economist at HSBC, adding that factors including steady investment growth and improving labor market conditions help lift production growth.

Lu said that the bank stands by the 8.1 percent GDP growth forecast for 2013.

The Chinese economy posted its worst annual growth since 1999 last year at 7.8 percent.