China PMI tops forecast, hard landing fears ease

Wed Feb 1, 2012 3:36am EST
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By Aileen Wang and Kevin Yao

BEIJING (Reuters) - China's factory sector expanded slightly in January, confounding expectations for a contraction and supporting hopes the world's second-biggest economy will avoid a hard landing, a government purchasing managers' index showed.

A similar HSBC survey showed the sector contracting the least in three months, further backing the view that a downturn in manufacturing may be bottoming out as the government adopts modest measures to support growth.

The official PMI rose to 50.5 in January from 50.3 in December, beating market expectations of 49.5 as new orders rose to a three-month high. A level of 50 demarcates expansion from contraction.

"This suggests that the manufacturing sector has stabilized somewhat due to supportive fiscal and monetary policies," said Li-Gang Liu, China economist at ANZ in Hong Kong.

"Indeed, the stronger-than-expected PMI supports our baseline scenario of a soft landing."

The Australian dollar gained a third of a cent on hopes that the higher-than-expected government PMI would support Chinese demand for the country's commodities.

"January PMI continued to pick up slightly from the reading of December, indicating that the economic slowdown trend is gradually stabilizing," Zhang Liqun, a researcher with the Development Research Centre of the State Council, said in the official statement.

"The improvement in both new order and stock of purchase sub-indexes reflected the factory production is recovering. But the new export order sub-index dropped last month, showing that the external demand is shrinking and we should pay high attention to the possible hit from external uncertainties."   Continued...

<p>Employees work at a garment factory in Wuhu, Anhui province February 1, 2012. REUTERS/Stringer</p>