Chinese Manufacturing Shrinks in January as New Orders Weaken

The Chinese economy started the year on a weak footing as factory output and new order growth weakened, a private survey showed on 30 January.

Factory activity, in the world's second-largest economy, contracted for the first time in six months in January, the Market/HSBC survey revealed.

The Markit/HSBC final manufacturing PMI for January dipped to 49.5 from December's 50.5. The January reading was in line with the 49.6 reported in the flash version of the PMI released last week.

A reading below 50 indicates a contraction while one above highlights expansion.

The survey, a gauge of sentiment in the 56.9tr yuan ($9.4tr) economy, found growth rates in output and new business weakening.

It showed that employment levels fell for the third consecutive month and that companies cut jobs at the fastest pace since March 2009. The survey also highlighted lower export orders in January, indicating weak overseas demand and higher inventories.

A majority of all China economists polled by Reuters have maintained that Beijing would manage to deliver 7.5% growth in 2014. The Communist regime is likely to adopt a 7.5% growth target for the year.

Hongbin Qu, chief economist for China at HSBC, said in a statement: "A soft start to China's manufacturing sectors in 2014 [is] partly due to weaker new export orders and slower domestic business activities during January."

"Policymakers should pay attention to downside risks and pre-emptively fine-tune policy to steady the pace of growth if needed," Hongbin added.

Last week's preliminary PMI reading triggered a sell-off across markets as investors fretted over the global impact of a China slowdown.

Reforms Push

However, many economists and experts have said that Beijing would jump in if the economy – burdened by industrial overcapacity, debt and surging house prices – lost traction too quickly.

China's leaders want to guide the country away from debt-driven investments in infrastructure and property, and towards a more sustainable path.

As such, Beijing is looking to tighten its fiscal disciplinary measures in a bid to tackle rising debt levels at local government agencies.

China's economic growth slowed to 7.7% in the fourth quarter of 2013 from 7.8% in the preceding quarter. Full-year growth hovered at 7.7%, slightly above the government's target of 7.5%.