Growth in Chinese manufacturing slows

Story highlights

  • China's economy continues to grow but at slower pace, according to official data
  • Purchasing manager's index edges down from 50.6 in December to 50.4 in January
  • In contrast, HSBC's China PMI rose to two-year high of 52.3 in January
  • China data reflects state-owned companies; HSBC data depict private sector

The Chinese economy paused for breath at the start of 2013 according to a survey that showed a dip in growth in its manufacturing sector last month.

The official purchasing managers' index, a gauge of the industrial sector, edged down to 50.4 in January from 50.6 in December. In remaining above the midpoint of 50 for the fourth consecutive month, the reading still signalled an expansion in activity but at a slightly reduced pace.

A separate PMI for China published by HSBC sent conflicting signals, rising to a two-year high of 52.3 in January from 51.5 in December. The official PMI is generally seen as reflective of state-owned companies, while the HSBC version is a better proxy for the private sector.

Analysts said China remained on course for a moderate recovery in the first half of the year after slowing to 7.8 per cent growth in 2012, its weakest year in more than a decade. But some investors and economists had expected a strong performance in January from China after growth perked up in the final quarter of last year, so the lower official PMI came as a mild disappointment to markets.

"In general we think the rebound is on track but the rebound seems to be quite modest," said Ding Shuang, an economist with Citi.

The Shanghai Composite, China's main stock index, opened down 0.5 per cent after rallying for a 20 per cent gain over the past two months.

The official PMI index for new orders increased to 51.6 in January from 51.2 in December, but the category for exports dropped to 48.5 from 50. That divergence indicates that external demand is sluggish, and that domestic demand is the main driver of growth.

The measure for output slowed to 51.3 from 52.0 in December, while the employment index fell to 47.8 from 49, flashing a warning signal that companies are cutting jobs.

Nevertheless, analysts cautioned against reading too much into the PMI numbers because economic data in China is always heavily distorted at the start of the year. With the country set to celebrate its lunar new year festival in early February, companies have already started scaling back production and tens of millions of workers have begun their annual mass migration from their factories and city jobs back to their rural homes.

"The PMI is a quite inaccurate barometer around the Chinese New Year holiday," said Lu Ting, an economist with Bank of America Merrill Lynch. "We believe the Chinese economy and its related asset markets will remain in a sweet spot in the near term."

Additional reporting by Emma Dong

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