China factory gauge sinks to first contraction in two years

A worker walks past an assembly line at a General Motors joint venture in Wuhan in central China’s Hubei province

A Chinese manufacturing gauge contracted in January for the first time in more than two years, adding pressure on the central bank to stimulate a faltering economy.
The government’s Purchasing Managers’ Index fell to 49.8 last month from 50.1 in December, according to data released yesterday by the statistics bureau and the China Federation of Logistics and Purchasing in Beijing. That missed the median estimate of 50.2 in a Bloomberg News survey of analysts and for the first time since September 2012 fell below the 50 level that separates expansion and contraction.
China’s fiscal revenue increased the least since 1991 last year due to a property slump and declining factory profits, curbing scope to boost growth with government spending. That may leave the onus on monetary policy to spur the economy.
“We expect such data will weaken further and push the government to take further easing actions,” said Zhang Zhiwei, chief China economist at Deutsche Bank AG in Hong Kong.
Seasonal reasons, falling commodity prices, and weak domestic and international demand caused the decline in manufacturing PMI, Zhao Qinghe, senior statistician at NBS, said in a statement on the bureau’s website.
Most sub-indexes fell, including new orders and new export orders. The sub-index of raw material purchasing prices decreased to 41.9, the lowest in at least a year, on the decline in commodity prices.
“China’s manufacturing sector is still facing de-leveraging pressure,” said Liu Li-Gang, head of Greater China economics at Australia & New Zealand Banking Group Ltd. in Hong Kong. “Deflation in the manufacturing sector continues and the destocking process has not yet completed.”
The non-manufacturing PMI fell to 53.7 in January from the previous month’s 54.1, according to a separate report from the NBS and the CFLP. Services made up 48.2 percent of the economy in 2014, up 1.3 percentage points from a year earlier.
“Taken together, the early signs for January point to a continued moderate deterioration in growth,” Bloomberg economist Tom Orlik wrote in a report yesterday. “With the equity market rally also losing steam, that should set the scene for further easing by the central bank. We continue to expect a further rate cut in the first quarter.”
The central bank lowered benchmark interest rates in November for the first time in two years, helping spur stock prices. The benchmark Shanghai Composite Index fell for a fourth day on Friday, capping its biggest weekly decline in a year on concern of regulatory scrutiny of margin lending.
The Chinese economy grew 7.4 percent last year and 7.3 percent last quarter, according to an NBS release last month. Bloomberg