China's manufacturing sector expanded in February at a rate that has never been seen in four months, beating forecasts by top economists.

The preliminary HSBC China Manufacturing Purchasing Managers' Index (PMI), which measures activity in the country's huge factory sector, rose to 50.1 in February from January's final reading of 49.7

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A reading above 50 indicates an expansion in manufacturing activity while a reading below indicates a contraction. The February PMI, therefore, means China's manufacturing sector is starting to recover.

The February PMI reading also beat forecasts by top economists. In an earlier survey conducted by Reuters, economists forecast a 49.5 reading.

The preliminary PMI reading in February also marks the highest expansion in four months but export orders continue to shrink. The new export orders sub-index lost three points from January to skid to 47.1, the sharpest rate of contraction since June 2013.

Input and output prices also fell. Though prices did not drop as sharply as they did in January, the trend pointed to further pressure on companies' profitability.

"Domestic economic activity is likely to remain sluggish and external demand looks uncertain," said Qu Hongbin, HSBC's chief economist in China. "We believe more policy easing is still warranted at the current stage to support growth."

Analysts said the expansion in China's PMI in February can be attributed to the celebration of the Lunar Chinese New Year, where demand for products is high.

China's economy grew 7.4 percent in 2014, the weakest annual expansion in 24 years, but still in line with market expectations.

Meanwhile, former World Bank senior vice president and top China economist Justin Yifu Lin said China should set its economic growth at more than 7% during the period of its 13th Five-

Year Economic Development plan.

Lin said Lin said China should strive to keep its GDP growth above 7% and become a high-income country, taking full consideration the impending takeover of India's economic growth, which is set to hit 8% to 9% by 2017, and the low profitability of the country's corporations.

Should China set its GDP growth target at only 6.6%, Chinese companies will face dim profit outlook, while a less than 6.5% goal could trigger a regional financial crisis. 

TagsChina PMI