HONG KONG - The China manufacturing Purchasing Managers Index (PMI), an indicator of the economic performance of the manufacturing sector, remained almost flat at 51.8 in March from 51.7 in February, according to a report released by the HSBC Friday.

The data confirmed that the pace of manufacturing expansion has stabilized following the slowdown in February, and implied that the economic growth is only moderating rather than plunging. However, the figure is still below the long-term average index at 52.3.

As such, the average PMI for the first quarter this year fell to 52.7 from 54.8 in the fourth quarter of 2010, reflecting a moderation in growth in response to the basket of tightening measures over the past six months.

Related readings:  China's March PMI of manufacturing sector rises  Stocks climb as developers advance on slower PMI  China's PMI drops to 6-month low in February  Dec PMI for non-manufacturing sector rises to 56.5%

"Prices hikes also started to slow in March," Qu Hongbin, co-head of Asian Economics Research of the HSBC said in the report. "All these confirm our view that quantitative tightening is working. So long as Beijing keeps tightening for another three to four months, inflation should start to slow meaningfully into the second half of 2011."

Looking into the breakdown, the output growth improved to 53.5 in March from 51.9 in February thanks to factories returning to the normal mode after the disruption of the Chinese New Year. Meanwhile, both input and output prices growth started to slow.

With slowing new orders growth, finished goods inventory reduced marginally to the slowest pace since July 2010. As such, the underlying growth momentum of the manufacturer sector has slowed to the lowest level in seven months.

In addition, Chinese manufacturers managed to add more workers and purchases in March. Some survey respondents said the shortage of available labor made recruitment difficult and staff resignation and retirement also contributed to a fall in staff numbers.

The breakdown of the PMI carried the same messages that the prices growth eased a bit to a three month low; the employment resumed expansion following two months of modest decline; new exports hold up well while imports growth slowed marginally.

"All these confirm a moderation of growth rather than a meltdown," Qu said, "Cooling economic growth is critical and helpful in containing inflation."