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Manufacturing activity contracted for the fourth consecutive month in January

Renminbi banknotes arranged for photography on July 3, 2018 in Hong Kong, Hong Kong.

S3studio | News Getty Images | Getty Images

China’s industrial activity contracted for a fourth consecutive month in January, underscoring the much-needed litany of policy support for the world’s second-largest economy announced by Beijing last week.

The official manufacturing purchasing managers’ index rose slightly to 49.2 in January from 49 in December, according to data from the Office for National Statistics released on Wednesday. It was in line with the median forecast in a Reuters poll.

According to NBS, the official index of non-manufacturing sector managers rose to 50.7 in January from 50.4 in December. The strength of the country’s services sector has helped offset the weakness of the construction sector amid a crisis in the real estate sector.

A PMI value above 50 indicates an expansion of activity, while a value below this level indicates a contraction.

China's economy has fared poorly, but not bad enough to justify major stimulus: CEO of China Beige Book

Of the five sub-indexes of the manufacturing PMI, new orders increased marginally, although production increased by 1.1 percentage points.

Employment in both the non-manufacturing and manufacturing sectors fell in December.

The construction sector economic activity index, included in the non-manufacturing PMI, stood at 53.9, down 3.0 percentage points.

Pan Gongsheng, governor of the People’s Bank of China, unexpectedly announced last week a cut in the amount of cash that banks are required to hold as reserves.

Later that same day, Beijing issued a new policy mandate aimed at easing the liquidity crisis for Chinese developers, who have struggled under the industry’s bloated debt crackdown.

The property market slumped after Beijing curbed developers’ high reliance on debt for growth in 2020, weighing on consumption growth and broader growth in China’s economy.

The PBOC said there is room for further easing of monetary policy. Reducing the reserve requirements that banks must maintain will increase lenders’ ability to extend loans and stimulate spending in the broader economy.

This is a developing story. Please check back for further updates.

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