China factories struggle, policy action seen ahead

BEIJING (Reuters) - China's big manufacturers narrowly avoided a contraction in December a survey showed on Sunday, but downward risks persist suggesting the world's second's second-largest economy will need policy support to counter a slowdown in growth.
The official purchasing managers' index, complied by t he China Federation of Logistics and Purchasing on behalf of the National Bureau of Statistics , rose to 50.3 in December from 49 in November.
That indicated a slight expansion in business activity in China's vast factory sector, but the reading was barely above the flatline of 50 that demarcates expansion from contraction which the index fell below in November for the first time since early 2009.
Analysts had expected the official PMI to be at 49.1 in December.
"The rebound in December PMI shows that there will be no big slowdown in the Chinese economy," Zhang Liqun, a researcher with the Development Research Centre of the State Council, wrote in the CFLP statement.
The economy faces downward pressure but there are positive elements that could underpin growth, Zhang sid.
The new orders sub-index rose to 49.8 in December from 47.8 in November while the sub-index for new export orders rose to 48.6 from November's 45.6.
A similar survey on Friday by HSBC and UK-based data provider, Markit, which captures data from smaller factories, inched up to 48.7 in December from a 32-month low of 47.7 in November but still signalled a modest contraction in factories on the month, reinforcing the case for pro-growth policies.
China's central bank is in the spotlight with widespread speculation in financial markets that it will soon unveil a cut in the required ratio of reserves it demands commercial lenders hold, after cutting it by 50 basis points on November 30 from a record high of 21.5 percent.
Such a move would free up funds that could be used for lending to support growth.
Still, Chinese officials have warned that demand-destroying effects of Europe's debt crisis and weakness in U.S. consumption could put more pressure on Chinese exporters in coming months.
That could intensify pressure on Beijing to ease monetary policy and step up fiscal spending to bolster the vast factory sector which supports an estimated 220 million Chinese jobs.
(Reporting by Kevin Yao; Editing by Nick Edwards)