China manufacturing growth falls flat in January
China’s manufacturing growth fell flat for the second consecutive month in January, while firms were forced to slash prices to secure business.
The HSBC/Markit Flash Manufacturing Purchasing Managers' Index (PMI) came in at 49.8 in January, largely unchanged from the previous month’s reading of 49.6 and slightly above the consensus reading of 49.6.
The slight rebound in the headline index was largely attributable to a surge in the new orders component, from 49.7 to 50.8, though the output component also edged up from 49.9 to 50.1. This appears to reflect a recovery in domestic demand rather than stronger foreign demand fell from 51.5 to 51.1.
Chinese firms had to cut production for the sixth consecutive month in January, which hit their profit margins and added to the growing concerns about deflationary pressures on the country’s economy.
January also marked the 15th consecutive month during which firms had to lay off staff amid sluggish demand.
"Today's data suggest that the manufacturing slowdown is still ongoing amid weak domestic demand," Qu Hongbin, a Hong-Kong-based HSBC economist said on Friday.
"More monetary and fiscal easing measures will be needed to support growth in the coming months."
Declining prices are also a concern for China, particularly as the country is desperate to avoid plunging into a 20-year deflationary spell like Japan did, which would cause economic growth and consumption to stagnate.
Producer prices in China have fallen almost continuously for the past three years, dragging the country’s annual consumer inflation to 1.5% in December, edging closer to a five-year low.
China’s People Bank unexpectedly slashed interest rates in November for the first time in over two years in a bid to contain deflation risks, but analysts believe more drastic measures might be required.
“Although today's PMI reading suggests that conditions in the manufacturing sector have held up better than expected, the economy still faces headwinds, particularly from the property sector,” said Julian Evans-Pritchard, China economist at Capital Economics.
“After recovering somewhat at the end of 2014, property sales have weakened again in recent weeks.
“Given this, we expect that policymakers will need to do more in order to achieve their stated aim of lowering borrowing costs and supporting growth.”