China's factory activity contracted for a seventh consecutive month in February, while non-manufacturing activities including services fell to the weakest level in over seven years, official data showed on Tuesday.
A difficult road lies ahead for the country's manufacturing sector and the overall economy, despite previous government measures such as quantitative easing and fiscal support to ease the slowdown, analysts said.
The official manufacturing Purchasing Managers' Index (PMI), a gauge of factory activity, came in at 49 percent for February, down 0.4 percentage points from January, according to data released Tuesday by the National Bureau of Statistics (NBS).
A PMI reading above 50 indicates expansion in activity, while a reading below that level suggests contraction.
Manufacturing PMI has been contracting for seven consecutive months now, and February's level was the weakest since January 2009, Bloomberg reported Tuesday.
Lower output and demand and a decline in staff numbers during the Spring Festival holidays all played a role in the weak PMI data for February, Zhao Qinghe, an expert with the NBS, wrote in an article on the agency's website.
Also worrisome was a much lower manufacturing PMI reading reported by Caixin Insight Group on the same day. The Caixin PMI, which tracks smaller firms than the official PMI, came to 48 for February, also down 0.4 points from the previous month.
Conditions worsening
Declines in all the key categories, including output, new orders and employment, signaled that manufacturing conditions have worsened, He Fan, chief economist at Caixin, said in a press release Tuesday.
And conditions won't improve anytime soon because manufacturing companies, particularly industrial firms, still face pressure to scale back production amid overcapacity issues due to sluggish demand both at home and abroad, said Chen Yao, a research fellow at the Institute of Industrial Economics at the Chinese Academy of Social Sciences.
The Chinese economy faces a "bumpy road" ahead, and "the government needs to press ahead with reforms, while adopting moderate stimulus policies and strengthening support for the economy in other ways to prevent it from falling off a cliff," He from Caixin said.
The People's Bank of China, the central bank, announced Monday that it would lower banks' reserve requirement ratio by 0.5 percentage points to boost liquidity and provide a better environment for the country's supply-side reforms.
The move will free up about $106 billion, according to analysts.
Although such easing measures are necessary to stop conditions from worsening, they will not be enough to turn things around in the near future, Chen told the Global Times on Tuesday, adding that manufacturing activity will continue to shrink amid the government's supply-side reforms, which could result in a lot of factory downsizing or even shutdowns.
Services under pressure too
Shrinking factory activity also put pressure on non-manufacturing sectors, including services and construction, analysts at Bank of Communications wrote in a note sent to the Global Times Tuesday.
Although still in positive territory at 52.7 percent in February, the official non-manufacturing PMI edged down 0.8 percentage points from January, according to the NBS. The level was the lowest since December 2008, Bloomberg reported.
However, the non-manufacturing PMI is likely to remain positive and might even rise more than 3 percentage points in the coming month, given "favorable incentives" from the government for the services sector, the analysts at Bank of Communications noted.
