China Manufacturing Contracts to Seven Months Low

China’s manufacturing contracted to a record seven months low, underscoring the challenge facing policy makers as they plan to reduce overproduction in manufacturing without derailing growth.

The factory gauge dropped to 49.0 in February, missing the estimated 49.4. Data below 50 indicate manufacturing contraction.

Earlier on Monday, the People’s Bank of China intensify its effort to cushion economic slowdown amid global financial crisis by cutting reserve requirement ratio for money lenders. The National People’s Congress will gather on Saturday to outline plans for 2016 and the next five years.

“Policy will continue to be expansionary and the focus is moving from currency and supply-side reforms to demand-side stimulus,” said Larry Hu, head of China economics at Macquarie Securities Ltd. in Hong Kong. “Upcoming data will continue to show a slowdown in the economy.”

A week long Lunar New Year holiday in February may have distorted the reading because of factories were shut down all through.

“This falls into our expectation that the Chinese New Year holiday had a negative impact on manufacturing as factories closed,” said Iris Pang, a senior economist for Greater China at Natixis SA in Hong Kong. “On the other hand, the holiday was positive for the services sector because it boosted holiday spending and domestic tourism.”