China manufacturing at year high but worries persist

China's manufacturing activity rose to the highest level in a year in March, official data showed Sunday, but analysts tempered enthusiasm, saying the world's second largest economy was still slowing.

The official purchasing managers index (PMI) rose to 53.1 from 51 in February, helped by an increase in new orders, the China Federation of Logistics and Purchasing said in a statement.

It marked the fourth consecutive month of expansion for manufacturing activity. A reading above 50 indicates expansion, while a reading below 50 suggests contraction.

The latest figure approached a level not seen since March last year, when PMI reached 53.4, previous data showed. The number also beat an average forecast by analysts of 50.5, according to Dow Jones Newswires.

"PMI tends to pick up in March every year... so it is important not to view this as a sign of out-and-out strength," Alistair Thornton, economist for IHS Global Insight in Beijing, said in a research note.

"At the very least, things are not getting worse," he added.

China's economy is widely expected to slow this year as woes in key export markets such as Europe and the United States hit its overseas sales.

The government last month set a target of 7.5 percent economic growth this year. China's economy grew 9.2 percent last year and 10.4 percent in 2010.

Some expect China's economy to have bottomed out in the first quarter, but others say recovery might be delayed until the second quarter.

"Future economic growth will still experience a slowdown," Zhang Liqun, a researcher at government think-tank the Development Research Centre, was quoted as saying in the official PMI statement issued by the industry group.

Analysts said manufacturing activity typically picks up in March with the arrival of spring and following an annual meeting of lawmakers during the month, which sets economic policy for the coming year.

"The government's PMI may have been affected by seasonal factors, so the reality may not be as good," Zhang Zhiwei, chief China economist for Nomura Securities, told AFP.

A separate reading of PMI also released Sunday by British banking giant HSBC showed a less optimistic picture than the official figure.

HSBC's PMI fell to 48.3 in March from 49.6 in February, marking the fifth month manufacturing activity has remained in contraction, the bank said in a statement.

"PMI results confirm a further slowdown of growth momentum," HSBC's chief economist for China, Qu Hongbin, said in the statement.

The HSBC survey puts more emphasis on smaller companies, which are suffering more in the economic downturn than state-owned giants.

The government will still need to loosen credit this year to offset the economic slowdown, analysts said.

ANZ Research said a cut in bank reserve requirements was likely, though the better-than-expected official PMI figure could delay the move to May or June.

The central bank in February cut the amount of cash banks must hold in reserve for the second time in three months as policymakers moved to increase lending and boost domestic consumption amid the economic slowdown.

"We continue to expect cautious, though supportive, monetary policy easing," ANZ said in a research note.

Beijing has pledged to "fine-tune" policy to prevent a hard landing for the economy, which could trigger widespread job losses and spark social unrest.