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Factory gauge slump spooks Chinese policy makers
03
Feb '16
China's official factory gauge fell for a record sixth straight month of deterioration, raising the stakes for policy makers struggling to boost the economy amid a second bear market in stocks since June and a currency at a five-year low, Bloomberg has reported.

According to latest data released by the National Bureau of Statistics, the purchasing managers index dropped to a three-year low of 49.4 in January. Numbers below 50 indicate conditions worsened. The official services index also fell, while a private PMI survey signaled the industry shrank for the 11th month.

The reports could complicate the dilemma for policy makers: add monetary stimulus to help stem the slowdown in growth, or avoid more easing that could exacerbate record capital outflows and put more pressure on the yuan. Chinese stocks fell, extending January's steepest monthly rout since 2008, threatening to further shake investor faith in how top officials can manage the world's second-largest economy.

“What has happened on the capital account, and how the authorities seem to want to respond to this in terms of policies, make it harder for them to respond to the weak economy by mainstream, forceful monetary measures,” said Louis Kuijs, head of Asia economics at Oxford Economics in Hong Kong. He said he expects more “quasi-fiscal policies,” such as expedited spending on infrastructure, to be announced in coming months.

The official manufacturing gauge's six months below 50 is the longest stretch of readings below that level in NBS data since the start of 2005. The PMI slumped last month because of weak demand and efforts to reduce overcapacity, NBS said in a statement. Indicators for new export orders and imports also decreased from a month earlier.

The non-manufacturing PMI for services edged down to 53.5 last month from a 16-month high of 54.4 in December.

A private manufacturing survey released on Monday showed some improvement, though it's been below 50 since February. The Caixin China Manufacturing PMI rose to 48.4 last month from 48.2 in December. New orders rose from the prior month, climbing to the highest level since June.

“The economy is still in the process of bottoming out and efforts to trim excess capacity are just starting to show results,” He Fan, chief economist at Caixin Insight Group, wrote in a statement released with the data. “The pressure on economic growth remains intense in light of continued global volatility. The government needs to watch economic trends closely and proactively make fine adjustments to prevent a hard landing.”

Employment gauges remained below 50 for both manufacturing and services, a signal of a shrinking labor force at both factories and services companies. The pressure to create more jobs is increasing this year, as the government works to reduce excess capacity. (SH)

Fibre2Fashion News Desk – India

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