Published: Sun, February 03, 2019
Markets | By Otis Pena

China factory activity shrinks in January

China factory activity shrinks in January

China's factory activity shrank by the most in nearly three years in January as new orders slumped further and output fell, a private survey showed, reinforcing fears a slowdown in the world's second-largest economy is deepening.

The official Purchasing Managers' Index edged up to 49.5 in January from 49.4 in December, better than the expected 49.3 though still below the 50-mark separating growth from contraction on a monthly basis, pointing to further strains on the economy that could heighten risks to global growth.

ANALYST'S TAKE: "The bad decline in the Caixin PMI index ... shows just how important it is for China and the United States to secure a trade deal". Articles appear on for a limited time. Different export-oriented economies reminiscent of Japan, South Korea, and Taiwan additionally reported weaker PMI numbers and the lackluster manufacturing unit outlook for 2019. Manufacturers also continued to cut jobs, a trend Beijing is closely watching as its weighs more support measures.

The non-manufacturing PMI was a bright spot, climbing to 54.7 from 53.8, with services performing well in January despite a dip in the construction index.

New orders - an indicator of future activity - pointed to further pressure in coming months. But gains were capped by weak manufacturing data for China. "The Irish reading is also well above the flash January Manufacturing PMI for the Eurozone, which came in at 50.5", he noted.

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To be sure, veteran China watchers typically advise taking its data early in the year with a pinch of salt, suspecting the trends may be distorted by the timing of the Lunar New Year holidays.

A man works at a workshop of a machinery manufacturing company in Nanjing, Jiangsu province, China December 7, 2018.

Many businesses close for the Chinese New Year, with workers heading home to celebrate the week-long holiday. Economic growth in China could stay weak in the first half of 2019 given both external and domestic challenges, Citi economists wrote in a Thursday note.

Eastern China remained the sectors' largest revenue contributor by earning 6.87 trillion yuan (1.02 trillion US dollars), accounting for 77 percent of the total revenue previous year.

Even then, some economists say support measures may only steady activity in China and not produce a strong rebound in its demand like that which helped pull the global economy out of recession after the financial crisis.

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