China factory growth beats expectations

China’s factory activity expanded faster than expected in February as domestic and export demand picked up, adding to signs that the global economy is regaining momentum.

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Growth in both output and orders accelerated last month, according to official and private factory surveys, giving the Chinese government more room to focus on tackling financial risks to the economy as debt continues to rise.

“This is the 7th consecutive month that China’s official manufacturing PMI stayed within expansionary territory, suggesting that industrial activity remains buoyant,” said Zhou Hao, emerging markets economist at Commerzbank AG in Singapore.

Zhou said it was “very likely” that China’s central bank would raise short-term interest rates by a another 10 basis points in March – which would mark the third such move in as many months – as authorities grow more confident that the economy is on steadier footing.

China’s central bank has cautiously shifted its stance in recent months to a tightening bias after years of super-loose policy to stave off the risk of a hard landing for the world’s second-largest economy.

The official Purchasing Managers’ Index (PMI) released on Wednesday rose to a three-month high of 51.6 in February, compared with the previous month’s 51.3, and above the 50-point mark that separates growth from contraction on a monthly basis.

Analysts had expected a reading of 51.1 in February.

China’s industrial sector has benefited from a construction boom since the middle of last year that has spurred demand and prices for building materials from cement to steel, boosting sales and profits.

Output rose at a faster pace of 53.7, compared to 53.1 in January, while overall new order growth also picked up.

A private survey which focuses more on small and mid-sized firms also showed factory activity picked up more than expected last month.

The Caixin/Markit Manufacturing Purchasing Managers’ index (PMI) rose to 51.7, up from 51.0 in January and beating analysts’ forecasts of 50.8.

A separate reading on the services sector showed growth remained robust in February.

The official non-manufacturing Purchasing Managers’ Index (PMI) stood at 54.2 in February, down from 54.6 in January, but well above the 50-point mark.