The steady ratcheting-up of monetary tightening has combined with the Lunar New Year holiday to weigh on China's factories in February, even as inflation has continued to accelerate, a survey showed today.

The HSBC flash manufacturing purchasing managers' index (PMI), making its debut, hit 51.5 in February, down from a final reading of 54.5 a month earlier.

The flash PMI, designed to provide an early indication of the final data, which is due a week later, suggested that China's industrial sector was expanding at its slowest pace in seven months.

"The Chinese New Year holiday may be a factor but not the only reason. It also implies that quantitative tightening is starting to filter through, yet more still needs to be done to check inflation," said Qu Hongbin, HSBC's chief China economist.

The sub-indexes measuring input prices and output prices were both on track to accelerate to three-month highs in February, as manufacturers facing rising global commodity costs tried to charge consumers more to recoup their spending.

China on Friday raised required reserves to a record 19.5 per cent, the fifth increase since October, during which time it has also raised interest rates three times and ordered banks to lend less.

Economists believe that China may be just about past the mid-point in a tightening cycle to tamp down on inflation, which is running near its fastest in more than two years.

According to the flash PMI, new orders have increased more slowly in February, while export orders have registered an outright decline, indicating that business growth has been generated almost entirely domestically.

Today marked the launch of the flash PMI, which will serve as one of the earliest available performance indicators for the world's second-largest economy.

The flash PMI is based on up to 90 per cent of total responses to the monthly survey and is designed to be an accurate snapshot of the final data, which is usually released on the first working day of every month.

Reuters