China’s factory grows slowest in 4 years

Manufacturing activity in China shrank at its fastest rate in four years in February, government data showed on 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. It was the lowest figure since 49.0 in November 2011, and was below the median forecast of 49.4 in a Bloomberg survey of economists.

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 per centage points, freeing up more funds for them to lend.

China’s economy, a vital driver of global expansion, grew 6.9 per cent last year, its weakest rate in a quarter of a century.

China’s leaders — who targeted growth of “about seven per cent” — 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.

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.