China's PMI slides to a 6-month low

Data from China's National Bureau of Statistics show that the country's manufacturing activity continued to decrease in January, hitting a six-month low and adding to further concerns about China's economic slowdown.

The bureau's official Purchasing Managers' Index (PMI) fell half a point to 50.5, down from 51 in December, according to figures released on Saturday, the second day of the Lunar New Year holiday.

The bureau said that the PMI is in line with market expectations, and was influenced by the holiday, which began on Friday - traditionally a time when manufacturing activity slows down as workers travel home and shops close.

The index measures five indicators of the manufacturing sector: new orders, inventory, employment level, supply deliveries and production. A reading over 50 indicates an expansion of the sector compared to the previous month and a reading below 50 means a contraction. A reading of 50 reflects no change.

The new orders subindex fell from 52 in December to 50.9 in January, a six-month low, and the employment subindex fell from 48.7 in December to 48.2 in January, an 11-month low.

The production subindex fell to 53 from 53.9 a month prior, and the inventory index increased from 47.6 in December to 47.8 in January.

The official PMI reading is in line with a private survey released by HSBC and financial data firm Markit for the month. The HSBC/Markit monthly reading had the PMI for January at 49.5, down one point from December.

Qu Hongbin, chief economist for China at HSBC, said in a statement that the decreased PMI is a "soft start to China's manufacturing sectors in 2014", due to slower business activity in January. "Policy makers should pay attention to downside risks and preemptively fine-tune policy to steady the pace of growth if needed," he added.

Other analysts forecasted a worrying year of growth to come. "The weak official PMI as well as the HSBC PMI clearly indicates GDP growth will decelerate in 2014 and beyond," JL Warren Capital head researcher Junheng Li said. "Weakening domestic demand and small enterprises appear to be the most worrisome."

Li said that macro sectors such as banks and property developers will be hurt the most by a contracting economy, and "especially given the tight and tightening credit environment", she added.

China's GDP for the fourth quarter of 2013 decreased to 7.7 percent from 7.8 percent in the third quarter, narrowly missing the government's yearly target of 7.5 percent.

Some were not as pessimistic. "PMIs are useful, but let's not carried away," said Steven Barnett, division chief in the Asia-Pacific division of the International Monetary Fund (IMF), in an IMF blog post.

"China's PMI is not the best indicator for growth, the decline was rather small, and January and February data (because of the Lunar 'Chinese' New Year) are hard to interpret," he continued.

Moderate slowdown is "expected" and welcomed as China "moves to a more inclusive, green, and sustainable growth path", he wrote. Domestic demand will be moderate as the government begins implementing reforms announced from the Third Plenum, he added.