China’s Manufacturing Sector Contracts for First Time in Six Months

China’s manufacturing sector has contracted for the first time in six months, according to the HSBC China Manufacturing Purchasing Managers’ Index (PMI). The index dropped to 49.5 in January, down from 50.5 in December. It was also slightly lower than the early indicator Flash reading of 49.6, released on 23 January.


“A soft start to China’s manufacturing sectors in 2014, partly due to weaker new export orders and slower domestic business activities during January," says Qu Hongbin, Chief Economist for Greater China and Co-Head of Asian Economic Research, HSBC. "Policymakers should pay attention to downside risks and pre-emptively fine-tune policy to steady the pace of growth if needed.”


Growth rates in output and new business weakened. New export orders declined for the second consecutive month, with firms suggesting weaker demand in a number of key export markets.


Employment levels fell for the third consecutive month and businesses cut jobs at the fastest pace since March 2009. Production levels continued to increase, while costs declined for the first time since July. Reduced costs were passed on to clients through lower output charges.


Purchasing activity increased for the sixth successive month, however the pace of growth was the weakest since September 2013.


PMIs are based on data compiled from monthly replies to questionnaires sent to purchasing executives in manufacturing companies. A reading above 50 indicates expansion, while one below 50 signals contraction.



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