Manufacturing activity in China shrank at its fastest rate in four years in February, government data showed Tuesday, a fresh sign of sustained weakness in the world’s second-largest economy.
The official Purchasing Managers’ Index (PMI), which tracks activity in factories and workshops, fell to 49.0 last month, figures from the National Bureau of Statistics (NBS) showed.
A reading above 50 signals expanding activity in the vital sector, while anything below indicates contraction, and investors watch the index closely as the first available official indicator of the country’s economic health each month.
It was the seventh consecutive month that the official index showed contraction, which Bloomberg News said was the longest such series on record.
The figures came only hours after the central People’s Bank of China cut the amount banks must hold in reserve, in Beijing’s latest attempt to tackle slowing growth.
It trimmed the so-called reserve requirement ratio (RRR) for financial institutions by 0.50 percentage points, freeing up more funds for them to lend.
China‘s economy, a vital driver of global expansion, grew 6.9 percent last year, its weakest rate in a quarter of a century.
China‘s leaders — who targeted growth of “about seven percent” — are looking to transform the economy away from the investment and exports of the past to one more oriented towards domestic consumption, but the transition is proving bumpy, and the growth slowdown has alarmed investors worldwide.
Tuesday’s NBS figures showed market demand “continued to fall” in February as the new orders sub-index slipped to 48.6 from 49.5 in January, while employment worsened with the jobs indicator falling by 0.2 points to 47.6.
The private Caixin Purchasing Managers’ Index, which has a greater emphasis on smaller firms, came in at 48.0 for February, the lowest in five months, the Chinese financial magazine said in a joint statement issued with data compiler Markit.
“The index readings for all key categories including output, new orders and employment signalled that conditions worsened, in line with signs that the economy’s road to stability remains bumpy,” He Fan, an economist at Caixin Insight Group, said in the statement.
He urged policymakers to adopt “moderate stimulus policies” and give stronger support to the economy to “prevent it from falling off a cliff”.
But investors took the figures in their stride, with the benchmark Shanghai Composite Index slipping 0.25 percent in morning trade, while the Shenzhen Composite Index, which tracks stocks on China‘s second exchange, edged up 0.06 percent.