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China HSBC manufacturing PMI hits seven-month low in February

An employee works above a furnace containing molten steel at a factory of Dongbei Special Steel Group Co. Ltd. in Dalian, Liaoning province January 30, 2014. REUTERS/China Daily

By Adam Rose

BEIJING (Reuters) - China's factory activity shrank again in February as output and new orders fell, a private survey found on Monday, reinforcing concerns of a slowdown in the world's second largest economy.

The final Markit/HSBC manufacturing Purchasing Managers' Index (PMI) fell to a seven-month low of 48.5 in February, the third straight monthly decline, from January's 49.5. The figure was in line with the 48.3 reported in the preliminary version of the PMI released on Feb 20.

A reading below 50 indicates a contraction, while one above 50 shows expansion.

"Signs are becoming clear the risks to GDP growth are tilting to the downside," said Hongbin Qu, chief economist for China at HSBC, in a statement accompanying the PMI results.

"This calls for policy fine-tuning measures to stabilize market expectations and steady the pace of growth in the coming quarters."

The PMI, which measures sentiment, found that new orders and output both contracted for the first time in seven months, while new export orders contracted less than in January.

Output was likely affected by manufacturers closing for China's biggest annual holiday, the Lunar New Year festival, which began on January 31 and covered early February, although the PMI results are seasonally adjusted.

The employment sub-index also fell for a fourth straight month to 47.2, its lowest point since March 2009.

That sub-index is one of the few indicators to measure the health of China's labor market, a priority area for Beijing, which wants to keep unemployment low in order to maintain social stability.

The official government PMI, released on Saturday by the National Bureau of Statistics (NBS), showed that activity in China's factory sector slowed to an eight-month low in February.

The official survey is weighted more towards bigger and state-owned enterprises and tends to paint a rosier picture than the HSBC/Markit survey, which focuses more on smaller firms and those in the private sector.

China's economic indicators have been mixed of late. Weak investment and declining PMI readings have been countered by surprisingly buoyant exports and bank lending.

The government has been trying to reduce the economy's dependence on exports and enhance the role of domestic consumption, but it is unclear how much growth it might be willing to sacrifice to reach that goal.

Some analysts have said weak PMI numbers would encourage the government to loosen monetary policy in order to keep the economy growing at 7.5 percent, a level that government economists have said could again be the official target, as it was in 2013.

Last year China's economy grew 7.7 percent, steady from the previous year and fractionally above market expectations of 7.6 percent, which would have been the slowest since 1999.

(Reporting By Adam Rose; Editing by Eric Meijer)