Chinese manufacturing has surprise strong start to 2012

The country’s official purchasing managers’ index rose to 50.5 in January, up from 50.3 in December, and beating the market expectation of 49.5. A level of 50 or higher indicates expansion in industrial activity.

The sector was buoyed by domestic orders, which rose to a three-month high, cushioning the impact of the eurozone debt crisis, according to the survey.

Signs that the Chinese economy was remaining resilient have prompted the government to relax monetary policy.

In November the People’s Bank of China said it would reduce the required reserve ratio for its banks by 0.5 percentage points, starting from December 5 - the first monetary easing policy from China in three years.

Many analysts had predicted cut the required reserve ratio in January but, since November the central bank has held off from any more easing,

Brenda Kelly, market analyst CMC Markets, said the news that China looked to be heading for a ‘soft’ landing was positive.

“Over the past number of years, China has become crucial to the stability of world economy as other global markets have become increasingly dependent on exporting to the emerging superpower,” she said.

“Consequently, any indications that the country can engineer a ‘soft landing’ can be seen as positive.

“The PMI data released today beat expectations but the 50.5 level indicates that while factory activity is in expansion territory, momentum is still weak, particularly since

“China faces greater headwinds on weakening overseas demand. Equity markets spiked upwards on the news, but the potential for China to compensate for the global slowdown in their domestic market remains questionable.”