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Workers in an oil-paper umbrella factory in Liuyang, Hunan province. Photograph: HAP/Quirky China News/REX
Workers in an oil-paper umbrella factory in Liuyang, Hunan province. Photograph: HAP/Quirky China News/REX

China manufacturing shrinks for the first time in two years, survey shows

This article is more than 9 years old

China’s official measure of activity in factory and workshops shows it contracted in January, signalling continued slowing of the economy

China grows at slowest rate for 24 years

China’s manufacturing activity contracted for the first time in more than two years in January, an official survey showed on Sunday, signalling further downward pressure on the world’s second-largest economy.

The official purchasing managers’ index (PMI) released by the national bureau of statistics came in at 49.8 last month, down from the 50.1 recorded in December.

The index, which tracks activity in factories and workshops, is considered a key indicator of the health of China’s economy. A figure above 50 signals expansion, while anything below indicates contraction.

January’s figure was the first contraction for 27 months.

The British bank HSBC said last month that a preliminary reading of its own PMI edged up to 49.8 in January from a final reading of 49.6 in December. It was at the break-even point of 50.0 in November.

The bank is scheduled to release its final PMI figure on Monday.

ANZ Banking Group said in a research report that the NBS figures were unexpected, particularly given “favourable seasonal factors”.

“The Chinese New Year falls into late February this year, while it was in late January last year,” ANZ said.

“Past experience suggests that there could be significant front loading effect before the Chinese New Year, which would provide short-term impetus to the manufacturing industry.”

China’s central bank surprised economists in November by cutting benchmark interest rates for the first time in more than two years, in a move interpreted as an attempt to shore up flagging growth.

The People’s Bank of China lowered its one-year rate for deposits by 25 basis points to 2.75% and its one-year lending rate by 40 basis points to 5.6%.

The Chinese economy is struggling with not just stalling factory growth, but also other problems including soft exports and the weakening property market.

It grew 7.4% in 2014, slower than the 7.7% in 2013 and the worst since the 3.8% recorded in 1990.

Authorities have used various kinds of limited stimulatory measures such as targeted cuts in bank reserve requirements – aimed at freeing up funds for lending – and a cash injection into the country’s five biggest banks for re-lending.

But leaders say they are ready to tolerate slower expansion and will avoid aggressive measures to boost growth as the government seeks to shift the economy away from its dependence on investment and exports towards more sustainable consumer-driven growth.

Premier Li Keqiang said last month at the World Economic Forum in Davos that he was determined to bring changes that would deliver “quality growth” rather than just a high top-line figure.

More on this story

More on this story

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  • Hard times return as China bids to bring its economic miracle to an end

  • UK manufacturing growth picks up pace as prices dive

  • Global deflation risk deepens as China economy slows

  • China's economy grows at its slowest annual rate for 24 years

  • China’s slowdown means vigilance is key for UK firms trading in far east

  • Red tape and skills gap threaten hope of record growth for India

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