China’s gauge of factory activity recorded its first contraction in more than two years in January. Here, women work at a garment factory in Huaibei in central China’s Anhui province. Photo: Zuma Press
ByWilliam KazerUpdated Feb. 1, 2015 2:09 a.m. ET
China’s economy got off to a weak start in 2015 with disappointing manufacturing- and service-sector readings, renewing calls for the government to introduce more measures to spur growth in the months ahead.
China’s gauge of factory activity recorded its first contraction in more than two years in January, and a measure of the usually strong services sector grew at a slower pace.
Analysts said the data for the official purchasing managers’ indexes, released by the National Bureau of Statistics on Sunday, suggested that the government would need to consider rolling out more targeted measures to boost the economy in the coming months.
China’s official manufacturing purchasing managers index fell to a weaker-than-expected 49.8 in January from 50.1 in December, its first dip below 50 since September 2012. A reading below 50 indicates contraction from the previous month, while anything above that shows expansion.
The official manufacturing PMI—weighted more toward big state companies that, so far, have been less sensitive to the sluggish economy—is now showing the same weakness as the private gauge compiled by HSBC. The HSBC index, interpreted as a reflection of the nation’s smaller private firms, also showed a preliminary reading of 49.8 for January late last month.
The disappointing official data showed the world’s second largest economy was still struggling to gain traction after expanding at its slowest pace in 24 years in 2014. China’s economy grew 7.4% last year—a solid performance for most major economies but well below China’s double digit growth levels of the recent past.
A slumping real-estate market, flagging domestic demand and a still-recovering global economy have worn on China’s growth prospects. Policy makers have dubbed the transition as a “new normal,” suggesting there is no return to the heady days of years past.
The government is widely expected to lower its growth target for this year to around 7%—down from its target of about 7.5% for 2014—despite an array of support measures. Beijing has used a combination of speeded approvals for infrastructure projects along with tax breaks and reduced red tape to help the economy along. In November, the central bank cut interest rates for the first time in more than two years and since then it has used short-term credit injections into the banking system to shore up liquidity.
Chinese Premier Li Keqiang has acknowledged that the economy still faces a set of challenges, and prioritizes fostering a healthy job market. Still, policy makers’ target of creating at least 10 million new jobs is the same as last year’s, though 13 million jobs were created in 2014.
HSBC’s Ms. Ma said that a decline in consumer inflation, which was a tame 1.5% in December and 2% for all of last year on the back of weaker demand and plummeting crude-oil prices, could prompt the central bank to cut interest rates again.
ANZ economists, in a note to their clients, predicted the central bank would cut bank deposit interest rates by 0.25 percentage point in the first quarter and reduce the proportion of deposits that banks must keep on reserve with the central bank—now at 20% for big banks—by 0.50 point, a move policy makers hope might encourage banks to lend more and stimulate business activity.
Meanwhile, the official nonmanufacturing purchasing managers index fell to 53.7 in January from 54.1 in December, according to official data also released Sunday. The result was still in expansion territory but was the weakest showing since January 2014.
The nonmanufacturing PMI covers the key services sector, which now accounts for about 48% of the economy and is a major source of employment. The nonmanufacturing measure includes retail, aviation and software, as well as real estate and construction.
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