China Factory Activity Moves into Contraction

China’s manufacturing sector slipped into contraction in January, according to the latest data, another indication of a slowdown in the world’s second largest economy.  The HSBC manufacturing purchasing managers index, a closely watched gauge of manufacturing activity, inched up to 49.7 for January, compared with 49.6 in December, HSBC said Monday. But it remains below the 50 level which separates contraction from expansion.

That comes one day after the Chinese government’s official PMI dipped to 49.8 for January, the first reading below 50 since 2012.  “We think demand in the manufacturing sector remains weak and more aggressive monetary and fiscal easing measures will be needed to prevent another sharp slowdown in growth,” said Hongbin Qu, HSBC’s chief economist for China.

Markets took a hit, with an almost 2% drop in the Shanghai Composite Index in morning trading. China’s currency, the yuan, also dropped to its lowest level against the U.S. dollar in eight months.  China’s economic growth slowed to 7.4% in 2014, the slowest rate in more than 20 years. While still impressive by global standards, most experts think it would slip further this year.


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