China's February factory activity likely contracted for fifth month

China's February factory activity likely contracted for fifth month

China's manufacturing activity likely contracted for a fifth straight month in February, a Reuters poll showed on Thursday, possibly increasing the clamour for further stimulus measures as factory owners struggle for orders both at home and abroad.

The official purchasing managers' index (PMI) likely fell to 49.1 in February from January's 49.2, according to the median forecast of 33 economists in the poll. The 50-point mark separates growth from contraction.

Economists appear in agreement that the economy is still largely struggling for traction despite some signs of green shoots in December's trade data and new bank loans hitting an all-time high in January, with the highest forecast a lone 50.0.

China's disappointing post-COVID recovery has raised doubts about the foundations of its economic model and stoked expectations policymakers will need to consider reforms, as consumers hold off spending, foreign firms divest, manufacturers struggle for buyers, and local governments contend with huge debt burdens.

Policymakers have pledged to roll out further measures to help shore up growth after the measures implemented since June had only a modest effect, but analysts caution Beijing's fiscal capacity is now very limited.

To prop up faltering growth, the People's Bank of China cut the reserve requirement ratio (RRR) for banks by 50 basis points on Feb. 5, the biggest in two years, releasing 1 trillion yuan ($139.0 billion) in long-term liquidity.

China's President Xi Jinping last week chaired a meeting of a key economic policy-making body on supporting manufacturers through equipment upgrades and lowering logistics costs, part of his push to rebalance the economy by harnessing technology to bring about productivity gains and income increases.

Many analysts worry that China may begin flirting with Japan-style stagnation later this decade unless policymakers take steps to reorient the economy towards household consumption and market-allocation of resources.

Beijing's decision to divert financial resources from its ailing property sector to manufacturers rather than households has raised overcapacity concerns among Western trade partners.

The official PMI will be released on Friday. The private Caixin factory survey will also be issued on Friday, and analysts expect its reading to edge down to 50.6 from 50.8