China's factory output edged up in February but stayed in weak territory with new export orders at eight-month lows, a private-sector survey of purchasing managers showed today, suggesting Beijing would maintain pro-growth policies.

The HSBC final manufacturing purchasing managers index (PMI) stood at 49.6 in February, a shade higher than January's reading of 48.8, but still under the 50-point threshold that separates an expansion from a contraction in activity.

"Deteriorating external demand is adding more downside risks to growth in the absence of a strong comeback in domestic demand," said Qu Hongbin, HSBC's China economist.

"We expect the People's Bank of China to step up policy easing efforts as inflation pressures recede."

PMI survey methodology around the world maintains that a reading below 50 indicates falling factory output. HSBC says a PMI reading of as low as 48 in China still suggests annual growth of 12-13 per cent in output, even if activity slowed on the month.

The final reading for HSBC's China's PMI is roughly in line with a flash estimate of 49.7, and a far-cry from the depths seen during the financial crisis when the PMI hit a low of 40.9 in November 2008.

The index, though, was slightly below the official China PMI which rose to 51 in February from 50.5 in January. The official index tracks opinions mainly from China's biggest companies, while the HSBC PMI index captures opinions mainly from smaller, private sector enterprises.

The HSBC PMI sub-index for new export orders posted the steepest fall with a slide to an eight-month trough of 47.5. A stronger showing from the new orders sub-index suggested overseas demand, rather than domestic demand, was the drag.

The subdued PMI data mirrors an overall sluggishness in China's economy, and counters a string of positive data from the United States that allayed fears of a marked deceleration in the world economy this year.

Chinese imports and bank lending were surprisingly weak in January, while actual factory output growth in December languished at its weakest in over two years.

The bleak outlook for the economy led the central bank to cut the amount of cash banks must hold in reserves earlier this month in an effort to boost their lending ability, and many investors foresee further policy loosening ahead.

A Reuters poll in December showed analysts expect Beijing to cut banks' reserve requirement ratio by a total of 200 basis points in 2012. The central bank's move in February lowered the ratio by 50 basis points.

Reuters