China January factory activity falls at fastest pace since 2012: official PMI

Sun Jan 31, 2016 9:23pm EST
 
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SHANGHAI (Reuters) - Activity in China's manufacturing sector contracted at its fastest pace in almost three-and-a-half years in January, missing market expectations, an official survey showed on Monday.

The official Purchasing Managers' Index (PMI) stood at 49.4 in January, compared with the previous month's reading of 49.7 and below the 50-point mark that separates growth from contraction on a monthly basis. It is the weakest index reading since August 2012.

Analysts polled by Reuters predicted a reading of 49.6.

The PMI marks the sixth consecutive month of factory activity contraction, underlining a weak start for the year for a manufacturing complex under severe pressure from falling prices and overcapacity in key sectors including steel and energy.

"The electricity production remained sluggish and the crude steel output continued the weak trend in January, reflecting an ongoing deleveraging process in the industrial sectors," said Zhou Hao, an economist at Commerzbank.

"In the meantime, China has started an aggressive capacity reduction in many sectors, which could add downward pressure on the bulk commodity prices over time."

Meanwhile, the official non-manufacturing Purchasing Managers' Index (PMI) fell to 53.5 from December's 54.4, according to the National Bureau of Statistics (NBS). The services index remained in expansionary territory highlighting continuing strength that has helped China weather the sharp slowdown in manufacturing.

With manufacturing decelerating quickly, services have been a crucial source of growth and jobs for China over the past year, and analysts have been watching closely to see if the sector can maintain momentum in 2016.

However, as the first indication of economic sentiment in 2016, the headline PMI data for both sectors might be distorted by the week-long Lunar New Year break beginning this year on Feb. 7, analysts say.   Continued...

 
Employees work at a production line inside an automobile factory in Hangzhou, Zhejiang Province, China, January 18, 2016. REUTERS/Stringer