China Posts Disappointing Factory, Services Data -- Update

By William Kazer 

China's economy got off to a weak start in 2015 as a gauge of factory activity recorded its first contraction in more than two years in January and the usually strong services sector grew at a slower pace.

Analysts said the data, released by the National Bureau of Statistics on Sunday, suggested that the government would need to consider rolling out more targeted measures to boost the economy in the months ahead.

"The weak PMIs show that demand from the corporate sector is still sluggish," said Ma Xiaoping, an economist at HSBC, adding that support measures so far had only a limited effect.

China's official manufacturing purchasing managers index fell to a weaker-than-expected 49.8 in January from 50.1 in December, its first dip below 50 since September 2012, when it also was at 49.8. A reading below 50 indicates contraction compared with the previous month, while anything above that shows expansion.

The January PMI was lower than the median forecast of 50.3 by economists polled earlier by The Wall Street Journal, though it matched the 49.8 preliminary reading from an unofficial survey of factory activity compiled by HSBC.

China's economy expanded 7.4% last year--its slowest pace in 24 years, weighed down by a slumping real-estate market, flagging domestic demand and a still recovering global economy.

The government had set a growth target of about 7.5% for 2014 but is likely to lower its target for this year to around 7%.

The government has used a combination of speeded approvals for infrastructure projects along with tax breaks and reduced red tape to help the economy along. In November, the central bank cut interest rates for the first time in more than two years and since then it has used short-term credit injections into the banking system to shore up liquidity.

But those measures have so far produced only limited results.

HSBC's Ms. Ma said that a further decline in consumer inflation, which so far has remained tame, could prompt the central bank to cut interest rates again.

The January manufacturing PMI data showed weakness in its subindexes for new orders and output, which expanded but at a slower pace than in the previous month, while employment contracted.

China's official nonmanufacturing purchasing managers index fell to 53.7 in January from 54.1 in December, according to official data also released Sunday. The result was the weakest since January 2014, when the index was at 53.4. The nonmanufacturing PMI covers services including retail, aviation and software, as well as real estate and construction.

The subindex for services fell to 52.9 from 53.3 in December and the subindex for construction fell to 56.9 from 57.1. The new-orders subindex for the entire sector fell to 50.2 from 50.5.

Grace Zhu contributed to this article.

Write to William Kazer at [e-mail]

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