Manufacturing may contract for 2nd month

China's manufacturing activity may contract for a second consecutive month in February with a preliminary survey reading falling to a seven-month low.

The HSBC Flash China Manufacturing Purchasing Managers' Index, the earliest available indicator of China's industrial sector's vitality, dropped to 48.3 in February from January's final index of 49.5, according to HSBC Holdings plc and research firm Markit this morning.

A reading below 50 means contraction, and the latest figure registered the fifth straight month of decline.

Qu Hongbin, chief economist for China at HSBC and co-head of its Asian Economic Research, said the index moderated further as new orders and production decreased, reflecting the renewed destocking activities.

"The building-up of disinflationary pressures imply that the underlying momentum for manufacturing growth could be weakening," Qu said. "We believe Chinese policymakers should and can fine-tune policy to keep growth at a steady pace in the coming year."

China's economy showed signs of moderation at the end of last year. Yet while the latest set of data pointed to surprisingly good trade, sufficient credit, low inflation and more foreign direct investment at the start of 2014 in the world's second-largest economy, the PMI figures told a different story.

A note by the Australia & New Zealand Banking Group Ltd said yesterday that the data should be carefully interpreted, and it would be better understood with next month's release, which will combine January and February, to account for seasonal factors such as the Spring Festival holiday.

China's gross domestic product expanded 7.7 percent in the fourth quarter of last year, slowing a bit from the pace of 7.8 percent in the previous three months. The World Bank estimated that economic growth in China may remain at 7.7 percent this year.