China’s January factory activity shrinks
February 1, 2016, 5:11 am

Activity in China’s manufacturing sector contracted more than expected in January, missing market expectations [Xinhua]

The purchasing managers’ index (PMI) came in at 49.4, down from December’s 49.7, according to the National Bureau of Statistics (NBS) and the China Federation of Logistics and Purchasing.

A reading above 50 indicates expansion, while a reading below 50 reflects contraction.

The index, below the market forecast of 49.6, fell to its lowest level since August 2012, as China’s economy is seeking new growth engines amid a housing market slowdown and a campaign to cut industrial overcapacity.

NBS statistician Zhao Qinghe attributed the retreat to slowing factory activity ahead of the Chinese New Year holidays in early February, as well as the trimming of industrial capacity.

The economic slowdown both at home and abroad also affected aggregate demand and foreign trade growth, Zhao explained.

China’s stock market opened lower following the data release, with the benchmark Shanghai Composite Index down 0.24 per cent at 2,730.98 points.

In breakdown, the sub-index measuring production stood at 51.4, down 0.8 points from a month earlier, and that for new orders settled at 49.5, down 0.7 points.

A separate survey by financial information service provider Markit and sponsored by Caixin Media also showed a modest deterioration in Chinese manufacturers’s operating conditions.

The Caixin General China Manufacturing PMI stood at 48.4 in January, up 0.2 points from December.

“Recent macroeconomic indicators show the economy is still in the process of bottoming out and efforts to trim excess capacity are just starting to show results. The pressure on economic growth remains intense in light of continued global volatility,” the Caixin report said.

The official PMI samples 3,000 large enterprises in China. The Caixin PMI samples 420 small and medium-sized manufacturing enterprises and is relatively volatile due to its sample size and the dominance of small enterprises.

The disappointing data at the start of 2016 came after China’s economy grew by 6.9 percent year on year in 2015, its lowest annual expansion in a quarter of a century.

Minsheng Securities said the weak reading showed monetary easing and pro-growth policies, including several cuts in interest rates and bank reserve requirement ratios, have yet to arrest the economic slowdown.

To start new growth engines, the government has pinned its hopes on supply-side structural reform, which focuses on better provision of high-quality goods and services and lower costs for businesses.

“Until the supply-side reform really shows results, the economy will remain under downward pressure,” according to Minsheng.

Source: Agencies