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China January manufacturing PMI falls to 49.6, first contraction in 6 months

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Beijing – Activity in China’s factory sector contracted in January for the first time in six months as new orders declined, a preliminary private survey showed on Thursday, confirming that a mild slowdown at the end of 2013 has continued into the new year.

The flash Markit/HSBC Purchasing Managers’ Index (PMI) fell to 49.6 in January from December’s final reading of 50.5, dropping below the 50 line which separates expansion of activity from contraction.

The data is the first indication of sentiment in the 56.9 trillion yuan ($9.4 trillion) economy, the world’s second-largest, for the new year.

“The marginal contraction of January’s headline HSBC flash China manufacturing PMI was mainly dragged by cooling domestic demand conditions,” said Qu Hongbin, chief economist for China at HSBC.

“This implies softening growth momentum for manufacturing sectors, which has already weighed on employment growth. As inflation is not a concern, the policy focus should tilt towards supporting growth to avoid repeating growth deceleration seen in 1H 2013.”

The flash PMI showed a faster rate of decrease in new export orders and employment in January. The new orders index came in at 49.8, the first contraction in six months.

Figures on Monday showed China’s annual economic growth cooled to a six-month low of 7.7 per cent in the October-December quarter.

Momentum has slowed due to the government’s shift towards restructuring the economy and as exports stuttered.

While the economy narrowly missed expectations for full-year growth to fall to a 14-year low in 2013, some economists say a further cooldown will be inevitable this year as officials hunker down for difficult reforms.

China wants to change tack by embracing sustainable and higher-quality development instead.

That means reducing government intervention to allow financial markets to have a bigger say in allocating resources, and promoting domestic consumption at the expense of investment and exports.

Full-year growth in 2013 was 7.7 per cent, steady from 2012 and just slightly above market expectations for a 7.6 per cent expansion, which would have been the slowest since 1999.

PMI surveys at the end of last year had confirmed slowing momentum, with the HSBC/Markit one showing a three-month low and the government’s official PMI at a four-month low. Both cited weak new export orders as one of the main reasons for the dip.

A Reuters visit to southern China’s manufacturing heartlands this month showed many factories have closed earlier than usual for the upcoming lunar new year, the nation’s biggest holiday, discouraged by weak orders and rising costs.

The HSBC/Markit PMI is more weighted towards smaller and private companies than the official one, which contains more large and state-owned firms.

The final HSBC/markit manufacturing PMI for January is due on Jan. 30 and the official manufacturing PMI is set for release on Feb. 1.

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