BEIJING (Reuters) - China’s factory activity expanded for the eighth straight month in February as export orders picked up, a private survey showed on Wednesday, giving authorities more room to tackle financial risks in the economy as debt continues to rise.
The Caixin/Markit Manufacturing Purchasing Managers’ index (PMI) rose to 51.7 on a seasonally adjusted basis, up from 51.0 in January and beating analysts’ forecasts of 50.8.
Growth in output and new orders both accelerated from January, but were below December’s levels, while stocks of finished goods fell again and input prices rose at the slowest pace in four months.
China’s manufacturing sector has seen a sustained recovery since the second half of last year as a booming housing market and government infrastructure spending boosted construction and as banks extended a record amount of credit.
Exports are now also showing signs of picking up, after China lagged other major Asian countries which had seen a rebound in foreign shipments in recent months.
The Caixin PMI sub-index for new export orders rose to 53.8, compared to 52.9 in January and the highest rate of growth since September 2014.
China’s January exports beat expectations, bolstering views that global demand is improving, but the trade outlook is being clouded by worries about the impact that rising U.S. trade protectionism could have on the world’s largest exporter.
Sustained strength in China’s economy has allowed policymakers to focus on containing financial risks and asset bubbles fuelled by years of debt-fuelled stimulus.
China plans to slightly lower its target for broad money supply growth to 12 percent, Reuters reported on Tuesday, as Beijing adopts a modest tightening bias in a bid to cool strong credit growth.
The People’s Bank of China raised key short-term interest rates in late January and early February.
But top leaders will balance risk controls with ensuring growth stays on track, and analysts expect further tightening to be limited as economic fundamentals are still shaky.
With housing prices slowing and monetary conditions expected to be modestly tighter, China’s economy could face renewed pressure soon.
“The Chinese manufacturing economy continued to recover in February. But it is premature to jump to the conclusion that the recovery is entrenched,” said Zhengsheng Zhong, Director of Macroeconomic Analysis at CEBM Group, in a note with the PMI data.
“The second quarter is likely a key period to look at for future trends.”
Factories continued to face sharply rises in input costs, though the pace of inflation pulled back further from December’s 69-month high. But companies were only able to pass on part of the price rises to their customers.
Reporting by Elias Glenn; Editing by Kim Coghill; Elias.Glenn@thomsonreuters.com; +86 138 1600 5903; Reuters Messaging: email@example.com