Manufacturing activity slows in January

Manufacturing expansion in China slowed to below market expectation in January, dragged down by shrinking export orders, according to an official government index released on Friday.

But separately, an unofficial index for the sector, by a major international bank, hit a two-year high in January, suggesting domestic demand had strengthened.

The two indexes showed a 1.9-point difference in performance, which created some confusion in the market.

The Purchasing Managers' Index for the manufacturing industry, a gauge of nationwide manufacturing activity, retreated to 50.4 in January from 50.6 in December, lower than the market's expectation of around 51, the National Bureau of Statistics and the China Federation of Logistics and Purchasing jointly announced.

The official figures may encourage the government to further stimulate domestic demand for stabilizing the growth rebound since the last quarter of 2012, analysts said.

PMI had remained higher than 50 for four straight months, meaning steady expansion in the sector. A reading below 50 indicates contraction.

The government figures were released on the same day as those by HSBC Holdings Plc, which reported its own manufacturing PMI for last month, showing a sudden rise to 52.3 from 51.5 in December, a two-year high, said HSBC.

The UK's Financial Times suggested that the official PMI might be considered as reflective of State-owned companies, while the HSBC version was a better indication of private activity.

Sun Junwei, an economist in China with HSBC, said the sharp growth in its index was mainly due to the strengthening of domestic demand conditions, while external demand only showed tentative signs of stabilization.

Some experts suggested the marked difference in the two indexes could be linked to the official January PMI being the first time the statistics bureau had expanded its survey sample size to 3,000 enterprises across 31 industries, from the previous 820, across 21 sectors.

"This change of survey method may have obvious influence on the final reading. However, we believe the official PMI can better reflect the economic situation in China," said Liu Ligang, chief China economist with Australia and New Zealand Banking Group Ltd.

Related Readings

China Jan manufacturing PMI falls to 50.4%

China's Dec PMI flat at 50.6%

Manufacturing hits 14-month high

China's November inflation rises to 2%