Manufacturing expands in Feb, but at slower pace(2)

Jiang Yongzhong, head of the Chamber of Commerce for Wenzhou Businessmen in Jinhua, Zhejiang province, said: "The seemingly recovering global economy has brought no obvious changes to struggling businesses in Jinhua after Spring Festival compared to the past year, causing the majority of small businesses to suffer great losses."

Jiang added that hopefully the situation will ease soon, with businesses seeing growth in orders and profits after the first quarter.

The bureau's data showed that in February, the PMI for small-scale businesses dropped to 46 last month from 46.2 in January, suggesting a contraction, while the index for large enterprises was unchanged at 51.3.

Zhang said the operational situation for small and medium-sized enterprises remains difficult, because of increasing production costs and a decline in new orders. "This contraction has never been reversed, but has worsened."

Louis Kuijs, chief China economist at the Royal Bank of Scotland and a former World Bank economist, said China's growth has continued, but GDP growth in the first quarter of 2013 is expected to moderate somewhat after strong growth of 7.9 percent in the final quarter of 2012.

Kuijs added: "Inflation and housing prices are on the rise, while policymakers are increasingly calling for the reining in of financial risks stemming from local government debt and the rapidly expanding shadow banking sector."

He predicted that it will be less likely that the government will tighten monetary policies "any time soon", but it may contain overall credit expansion.

The bureau plans to release details of industrial output for the first two months and the inflation level for February on March 9, and these figures will give a clearer picture of the economy.

Qu, from HSBC, added: "China's gradual recovery will be sustained in coming months thanks to firmer labor market conditions, improving domestic demand and relatively accommodative policy support."

Zhang Zhiwei, chief China economist with Nomura Securities Co Ltd, forecast that year-on-year GDP growth in the first three months may peak at 8.2 percent, before slowing to 7.3 percent in the second half as macro policies may be tightened.