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Chinese economy shows signs of a slowdown

2014-02-08 08:28 Xinhua Web Editor: qindexing

China's official manufacturing activity index and a separate survey both eased in January from a month earlier, reinforcing the country's softening growth momentum with small enterprises suffering the most.

The Chinese economy is moving towards a slow-growth track and the exact slowdown will be more clear when February data is released, Shen Jianguang, chief economist with Mizuho Securities, told Friday's Shanghai Securities News.

The manufacturing purchasing managers' index (PMI). compiled by the National Bureau of Statistics and the China Federation of Logistics and Purchasing, dropped to a six-month low of 50.5 percent in January, from 51.0 in December. The January data was released on Feb. 1.

A HSBC/Markit survey showed the final reading of China's manufacturing PMI for January contracted for the first time in six months. HSBC/Markit China's PMI in January dipped to 49.5 from 50.5 in December, the first drop in operating conditions in the country's manufacturing sector since July. The figures were released on Jan. 23.

A PMI reading above 50 percent indicates expansion, while a reading below 50 percent indicates contraction.

The official PMI, which mainly surveys large firms, stayed above 50, but the HSBC/Markit index, which mainly questions small and medium-sized enterprises, fell below the threshold of 50, indicating that small and medium-sized companies are suffering the most, Shen said.

A breakdown shows that large enterprise PMI eased to 51.4 in January from 52 in December; medium-sized enterprise PMI eased to 49.5 from 49.9 in December; and small enterprise PMI fell to 47.1 from 47.7 in December, registering the sixth consecutive monthly decline and the lowest level since February 2013.

While overall economic activity begins to ease, small enterprises are facing a more challenging business environment, said Zhu Haibin, J.P. Morgan China Chief Economist in an email note on Friday.

On the growth outlook, Zhu expects relative stable consumption growth and a moderate improvement in exports. But these positive factors will be offset by a slowdown in fixed investment, which can be attributed to lingering manufacturing overcapacity, tighter local government financing conditions and a slowdown in the housing market.

Zhu said despite the same policy language, such as a proactive fiscal policy and prudent monetary policy, the tendency will be more on tightening this year.

China's gross domestic product (GDP) expanded 7.7 percent year on year in 2013, above the official target of 7.5 percent. GDP growth was 7.7 percent in the fourth quarter of 2013, down from 7.8 percent in the third quarter.

The government has yet to announce its 2014 growth target, and analysts widely expect it to be 7 or 7.5 percent.

Although headline GDP growth remains stable, analysts expect a further moderation as the focus of the authorities is to forge a more sustainable model and push ahead with reforms.

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