Chang Jian, an economist with Barclays Capital, predicted that the official National Bureau of Statistics PMI, to be released on Friday, could fall below 50 from 50.4 in January.

Despite external weakness and distortions due to the Chinese New Year holiday from Feb 9 to Feb 16, China's growth recovery remains on track since the start of the year, Chang said, supported by continued investment growth and a robust consumption increase.

Chinese banks more than doubled their lending in January from December, granting 1.07 trillion yuan ($171.7 billion) worth of new loans, official data showed earlier this month, as Beijing seeks to boost economic growth.

The domestic economy expanded 7.8 percent last year, its slowest pace in 13 years, in the face of weakness at home and in key overseas markets.

Policymakers cut interest rates twice in 2012 and have trimmed the amount of cash banks must place in reserve three times since December 2011 to encourage lending.

"But the government will face a renewed challenge in balancing growth and inflation risks in 2013," Chang said.

Zhang Zhiwei, chief Chinese economist with Nomura Securities Co Ltd, forecast that consumer inflation this year is likely to rise to 3.5 percent, while that for the second half may increase to 4.4 percent. The prediction came after the National Development and Reform Commission announced a hike in retail gasoline and diesel prices on Monday.

That may be a signal that the government could move to raise other "administratively suppressed" prices, such as electricity and other public utilities in the first half, which will contribute to an increase in the consumer price index, the main gauge of inflation, Zhang said.

Rising inflationary pressure, along with possible 8.1 percent economic growth in the first six months of this year, may cause the central bank, to raise interest rates twice in the second half, he added.

AFP contributed to this story.

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