Survey finds China manufacturing shrinks for first time in six months

Chinese manufacturing looks set to contract in January for the first time in six months, according to a recent survey, further evidence of a slowdown that complicates reform efforts in the world’s number two economy.

The preliminary version of HSBC’s purchasing managers’ index dipped to 49.6 this month from December’s 50.5 reading. It’s the lowest reading since July’s 47.7. The index is based on a 100-point scale on which numbers above 50 indicate expansion.

The report on China’s massive manufacturing industry adds to recent signs that the world’s second-biggest economy is decelerating, adding to pressure on China’s communist leaders who want to bring in sweeping reforms while keeping growth ticking along.

Data released the week of January 20 showed China’s economy expanded 7.7 per cent last year, tying 2012 for the weakest annual performance since 1999, as growth slowed in the final quarter.

China’s economic growth has slowed from searing double-digit rates of the past decade, although it’s still expanding much more quickly than the United States, Japan or Europe. However, the unexpectedly sharp decline raises the risk of politically dangerous job losses and heightens challenges faced by the ruling Communist Party as it tries to shift the basis of the economy to domestic consumption rather than trade and investment.

HSBC’s survey is based on responses from 85 to 90 per cent of 420 factories, with the full version being released January 30.

The report’s factory output sub-index fell to a three-month low, while new orders and new orders for export both decreased, as did employment.

January’s “marginal” contraction was mainly dragged down by “cooling domestic demand conditions,” HSBC’s chief China economist Qu Hongbin said. “This implies softening growth momentum for manufacturing sectors, which has already weighed on employment growth.”