HSBC's flash manufacturing PMI declined to 48.3 in February from 49.5 in January, and is below the consensus of 49.5. The interpretation of the Feb PMI could be difficult. The negative interpretation is that economic momentum is weakening. The less negative interpretations could include that data in Jan-Feb tend to be highly volatile due to the CNY effect, the PMI readings in the past two months were negatively affected by "emergency measures" in many localities to tentatively suspend production of polluting factories, and the stronger loan growth since January could soon offset some of the negatives. We believe that the more important implication is that the weaker PMI reading could become an additional driver for the government to speed up growth-enhancing reforms, especially deregulation and ownership reform of SOEs. These reforms will permit private and foreign capital to enter many industries that were previously closed to them, and thus boost overall investment and economic growth. In the past few days, the government or major SOEs have announced the following reforms in this direction: 1) Sinopec announced yesterday that it would adopt a "mixed ownership" model, allowing private investors to take stakes in its highly profitable downstream distribution business. This announcement from Sinopec, one of the largest SOEs in the China, signals that SOE reform will likely take place not only at the local level, but also at the national level, at a pace that is faster than expected. 2) Shanghai's Vice Mayor said that Shanghai Free Trade Zone would announce a new "negative list" (the product and service categories in which foreign investments are restricted) in the H1 of this year. We expect this 2014 negative list to be substantially shorter than the 2013 list. Given that the SHFTZ's negative list will likely be replicated in many other FTZs and the rest of China soon, the announcement of the new SHFTZ negative list will be significant. 3) A large local SOE, GREE Group (owned by Zhuhai SASAC), reported today that it would sell a major stake (up to 49%) to strategic investors. These strategic investors will likely include foreign and domestic non-SOE investors. 4) Many other local governments indicated in the past few days that they planned to push for "mixed-ownership reform" of major SOEs, and quoted specific companies or sectors such as resources, shipping, medical, transportation and power. These localities mentioned in the press include Jiangxi, Guangdong, Henan, Hebei, Guizhou, and Jiangsu. 5) Zhu Hengpeng, Director of Public Policy Research Center of Chinese Social Science Academy, estimates that 40% of publicly-owned hospitals will sell their stakes to "social capital", which includes private capital. In sum, we believe that deregulation and "mixed-ownership reform" for SOEs will likely move aggressively in the coming months and the remainder of this year. These reforms should help support economic growth and market confidence.

• [Editor:editor]