GROWTH in China’s manufacturing sector in February cooled to the weakest in over 1-1/2 years, raising concerns of a sharper-than-expected slowdown in the world’s second-biggest economy this year as regulators tighten the screws on financial risks.

The weakness was driven by disruption to business activity due to the Lunar New Year holiday and curbs to factory output from tougher pollution rules, but there are worries of a bigger loss in momentum.

“Although a recovery looks possible in the short run as the anti-pollution campaign winds down, the risk is still that the economy fares worse this year than is generally expected,” said Julian Evans-Pritchard, senior China Economist at Capital Economics.

The official Purchasing Managers’ Index (PMI) released yesterday fell to 50.3 in February, from 51.3 in January. But it remained just above the 50-point mark that separates growth from contraction on a monthly basis — the 19th straight month of expansion.

Analysts surveyed previously had forecast only a slight easing to 51.2.

Globally, solid demand has kept many export-reliant economies humming over the past year or so, though a move towards tighter policy in advanced nations could cut into growth this year.

The latest PMI’s sub-index of new export orders fell to 49, the lowest in at least a year, as the yuan currency appreciated against the U.S. dollar.

Chen Zhongtao, an official with China Logistics Information Center (CLIC), said that “13.6 percent of firms reported concerns over the appreciating Chinese currency and greater currency fluctuations,” the highest number of companies to do so since March 2017.

CLIC said in a statement export sluggishness is expected to continue this year as steel firms are more reluctant to ship goods in the face of rising global protectionism.

The index for output stood at 50.7, down from 53.5 in January as the Lunar New Year holiday disrupted factory activities, the statistics bureau said. Total new orders also expanded much slower in February.

Raw material input prices fell for the second consecutive month to the lowest since July 2017, indicating cost pressure from price rises on manufacturing firms is easing.

“I think besides the Lunar New Year factor, the stricter pollution measures in the north might have weighed on activities as well,” said Betty Wang, senior China economist at ANZ.

Wang expects momentum to pick up in the months ahead as the pollution crackdown tapers off.

Still, there are signs that China may continue with the pollution crackdown, with top steelmaking city Tangshan proposing new restrictions on production once the current curbs expire in March.(SD-Agencies)