BEIJING: Chinese factory activity contracted in January for a second straight month, a closely watched private survey showed Monday, a day after the government announced the first official decline in the sector in more than two years.
British banking giant HSBC said its final purchasing managers’ index (PMI) reading for January edged up to 49.7, from 49.6 in December.
But the result still showed shrinkage in the manufacturing sector of the world’s second-largest economy, a key driver of global growth. PMI readings below 50 point to contraction and anything above suggests growth.
The final number was also slightly worse than the preliminary reading of 49.8, HSBC said.
The index, compiled by information services provider Markit, tracks activity in China’s factories and workshops and is a closely watched indicator of the health of the Asian economic giant.
The figure came after an official Chinese survey on Sunday showed manufacturing activity contracting for the first time in more than two years.
China’s official PMI for January, released by the National Bureau of Statistics, came in at 49.8 last month, down from 50.1 in December. That was the first official contraction reading for 27 months.
“We think demand in the manufacturing sector remains weak and more aggressive monetary and fiscal easing measures will be needed to prevent another sharp slowdown in growth,” Qu Hongbin, HSBC chief economist for China, said in the release announcing the bank’s figure.
Manufacturing output expanded slightly in January for the first time in three months, HSBC said. While weak demand weighed on growth in new orders both domestically and overseas, the bank described the situation as having “broadly stabilised.”
Factory employment also fell for the 15th straight month, HSBC added, though the pace of decline was the slowest in the same period. AFP
“While the PMI readings for January are less downbeat on conditions among small firms, they suggest that momentum has continued to deteriorate among larger firms on the back of softening external demand,” Julian Evans-Pritchard, China economist at Capital Economics, wrote in a report.
While growth in the United States, the world’s largest economy, has been a relative bright spot — gross domestic product (GDP) grew 2.4 percent in 2014 for its best result in four years — other key regions such as Europe and Japan have lagged.
The 18 eurozone economies expanded by a mere 0.2 per cent in the July-September quarter of last year — the latest figures available — while Japan, the world’s third-largest economy, slipped into recession in the same period.
GDP in China, meanwhile, expanded 7.4 percent in 2014, slower than the 7.7 percent in 2013 and the worst result since the 3.8 percent recorded in 1990.
China’s economy has been beset by problems including soft manufacturing, weak exports and falling property prices, though the government has been satisfied so far that the slowdown is under control as employment has remained resilient.
Nevertheless, authorities have taken some steps to put a floor under growth, carrying out limited stimulus measures last year and even cutting benchmark interest rates in November for the first time in more than two years.
“The fall in the official PMI is consistent with our expectations that (first-quarter) growth will likely be weak,” economists at Goldman Sachs said in a report.
“As the official PMI is viewed as more important by the government, the likelihood of further loosening measures has increased further.”