China’s manufacturing sector is still in the contraction phase, as shown by preliminary numbers by the HSBC flash PMI data released today. Although the index edged up in February by more than expected to a four-month-high at 49.7 in February from 48.8 in January, any number below 50 indicates contraction. The indicator has failed to move above 50 in the last eight months, which signifies that the worlds’ second largest economy remains vulnerable to a deeper slowdown as the European debt crisis caps exports and the Chinese housing market cools.
China’s new export orders shrank in February the most in eight months, showing a worrying sign of the impact of the euro area debt crisis.
The new export orders sub-index dropped to 47.4, the lowest in eight months, from 50.4 in January as the European debt crisis cast a shadow over Chinese exports. Overall new orders were flat at 49.1, a level that indicates they were falling.
In anticipation of the weak data, China’s central bank (People’s Bank of China) announced its decision over the weekend to cut commercial banks’ reserve requirements by 50 basis points as of February 24, to stimulate growth and support an economic expansion.