Although manufacturing in China continued to contract, the bottom is in sight, analysts said after the release of a purchasing managers' index which rose in January.

The PMI, a measure of conditions in the manufacturing industry, rose for the second straight month in January to 45.3 percent from December's 41.2 percent, the China Federation of Logistics and Purchasing said yesterday. A reading above 50 shows a growth in business activity while below 50 shows a contraction.

"China's PMI may have bottomed in November, when an alarming reading of 38.8 percent was reported. Although manufacturing continued to contract in January, the pace has clearly slowed, and a rebound in activity may be not far from now," said Sherman Chan, an economist at Moody's Economy.com.

The PMI for five industries out of 20 exceeded 50 percent in the period, including tobacco, beverage, ferrous metal and food processing.

China has announced massive fiscal stimulus packages and sharp interest rate cuts to boost domestic demand and spur consumption to counteract a fallout from the global financial turmoil.

"The strong focus on infrastructure development and rural living standards means that domestic demand for industrial output has strengthened, which has helped to partly offset the sluggishness in orders from overseas," said Chan.

Most sub-indices, such as export orders, were still below 50 percent, but they have made a notable improvement.

The PMI for input prices rebounded to 41.5 percent in January from 32.7 percent in December, which may help stop the free fall in PPI, producer price index. Export orders climbed from 30.7 percent in December to 33.7 percent last month and the imports index rose to 39.9 percent from 33.3 percent over the same period.

"This may point to some shrinkage in the trade surplus in coming months, especially as the investment projects may boost import demand," said Ken Peng, an economist at Citigroup.

(Shanghai Daily February 5, 2009)