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Chinese Economy May Be Headed For Turnaround

Key indicator of China's manufacturing improved in January, a business group said Wednesday, fueling hopes an economic decline might be bottoming out.

BEIJING (AP) -- A key indicator of China's manufacturing improved in January, a business group said Wednesday, fueling hopes an economic decline might be bottoming out.

The national purchasing managers index rose to 45.3 in January on a 100-point scale where numbers below 50 indicate a contraction, up from December's 41.2, the government-sanctioned China Federation of Logistics and Purchasing said.

China still faces gloom elsewhere, with exports down and weaker retail sales growth. The logistics federation said the manufacturing work force shrank in January. But economists expect to start seeing the effects of a huge government stimulus package in coming weeks.

The latest PMI "undoubtedly points to a recovery in China," Merrill Lynch economists Ting Lu and T.J. Bond said in a report. They said they expect a rebound as early as the second quarter of the year.

Manufacturers have suffered from a collapse in global demand for Chinese textiles, toys and other goods and a downturn at home in real estate, auto sales and other industries. The government says some 20 million migrant workers have lost their jobs.

"The January PMI indicates China's economy is bottoming out and the trend of a recovery is gradually taking shape," said Zhang Liqun, a government economist, in a statement released by the Logistics Federation.

But Citigroup economist Ken Peng cautioned that it might be too early to expect a recovery. He said consumer demand could weaken as retailers end deep discounts offered over last month's Lunar New Year holiday.

"Being less bad is not the same as recovery," Peng said in a report.

Steel makers and other manufacturers are expected to benefit from Beijing's 4 trillion yuan ($586 billion) stimulus package unveiled in November. It calls for pumping money into the economy through spending on public works.

On Wednesday, state media said power companies will invest 580 billion yuan ($85 billion) this year in new facilities.

Also Wednesday, state media said bank lending in January exceeded 1.2 trillion yuan ($175 billion) as the government and companies drew on financing for projects under the stimulus plan. The state-run newspaper China Securities Journal said that was the highest month on record for total bank lending.

"China's exports look set to have a disappointing year," said Moody's Economy.com economist Sherman Chan. "However, strong efforts by the Chinese government should help to arrest the decline in production and foster a recovery in overall economic growth around mid-year."

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