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 even as fears grow of a surge in trade protectionism.
Growth in both output and orders accelerated last month, according to official and private factory surveys on Wednesday, giving the 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.
Facing growing risks from explosive growth in debt, 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 with 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.
New export orders grew at the fastest pace since September 2014.
Export outlook cloudy
Stronger readings on export orders would build on China's better-than-expected trade numbers in January, but worries of a rise in US trade protectionism are clouding the outlook longer-term.
Still, China's domestic demand appears solid for now, and is becoming more broad-based.
A separate reading on the services sector showed growth remained robust in February, though the pace of growth slowed slightly from January.
The official non-manufacturing Purchasing Managers' Index (PMI) stood at 54.2 in February, down from 54.6 in January, and well above the 50-point mark.
China's services sector has been a bright spot as the government tries to transition its economic growth model from a heavy reliance on investment and exports to being more consumer-focused.
The services sector accounted for over half of China's economy last year and for the majority of growth, as rising wages give Chinese consumers the opportunity travel and eat out more.
Improving business conditions in China are giving an welcome boost to its Asian neighbors, which have seen their economic growth ebb in recent years as China slowed.
South Korea said on Wednesday that its exports grew at the fastest pace in five years in February, with shipments to China surging 28.7 per cent on-year, the best growth since late 2010.