The Guardian | Business | Economics | Chinese Economy - January 31, 2016 - February 1, 2016 (02::48 GMT): China Manufacturing Sector Shrinks at Fastest Rate for More Than Three Years.
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 price of oil fell on the disappointing data, which was compounded by weak export figures from South Korea. Brent crude was trading at $35.54 per barrel at 02.00 GMT, down 45 cents, or 1.25 percent, from the last close.
China’s stock markets also fell in morning trading, although the Nikkei in Japan and the ASX/S&P 200 in Australia both swatted away the gloom to reamin in positive territory for the day.
Zhou Hao, an economist at Commerzbank, said: “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.”
“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 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 7 February, analysts said.
The slowdown was underlined on Monday by figures showing that South Korea’s exports suffered their worst downturn in January since the depths of the global financial crisis in 2009.
The trade ministry in Seoul said sluggish demand from China helped exports to fall to a worse-than-expected 18.5% from a year earlier, extending December’s slump of 14.1% and marking the 13th straight month of declines.
It was the biggest drop since August 2009 when shipments tumbled 20.9%.
Analysts said the grim data might force the Bank of Korea to ease policy once again, although few expect it to act at the next meeting scheduled for 16 February.
Lee Sang-jae, chief economist at Eugene Investment & Securities, said: “Export performance was poor due to a cooling global economy and declining prices for exports. It’s been like this since the fourth quarter and we’ll see this kind of low through March and April.”
“Shipments being this weak means a recovery in consumption is urgently needed. If you look at the economy as a whole, this might boost the need for policy easing.”