China manufacturing gauge falls to lowest level since July

An employee seals bottles of Maggi Seasoning on a machine at the Nestle factory in Dongguan. A Chinese manufacturing gauge fell to a six-month low in January as output and orders slowed amid government efforts to rein in excessive credit.

Bloomberg/BeijingA Chinese manufacturing gauge fell to a six-month low in January as output and orders slowed amid government efforts to rein in excessive credit.The Purchasing Managers’ Index was at 50.5, the National Bureau of Statistics and China Federation of Logistics and Purchasing said yesterday in Beijing. That matched the 50.5 median estimate of analysts surveyed by Bloomberg News and compared with December’s 51 reading. Numbers above 50 signal expansion.A separate manufacturing gauge released by HSBC Holdings and Markit Economics this week pointed to the first contraction in six months, underscoring the risk of a deeper slowdown in the world’s second-biggest economy. Communist Party leaders are wrestling with risks from a $6tn shadow-banking industry and swelling local-government debt.“The economy has lost some momentum,” said Wang Tao, chief China economist at UBS AG in Hong Kong, who previously worked at the International Monetary Fund. Credit growth slowed in the second half and “that impact is being felt,” she said.Estimates for the official PMI from 31 economists ranged from 50 to 50.9. The benchmark Shanghai Composite Index fell 0.8% on January 30, capping the worst start to a year since 2010, on concern the economy is slowing as the US Federal Reserve cuts stimulus. China’s markets are closed for the Lunar New Year holiday from January 31 to February 6.A gauge of output in January fell to a four-month low of 53 from 53.9, while the new-orders index declined to a six-month low of 50.9 from 52.0, according to government data. The survey suggested manufacturing jobs are shrinking at a faster pace, with a gauge of employment declining to 48.2, the lowest since February 2013. HSBC’s survey showed companies eliminating jobs at the fastest rate in almost five years.HSBC’s broader index, which showed a reading of 49.5 for January, is based on responses from more than 420 manufacturers and is weighted more toward smaller companies. The official PMI is based on questionnaires sent to about 3,000 companies.“Growth may continue to slow in the next couple of quarters due to generally tighter credit conditions, amid government efforts to contain local government debt and regulate shadow banking,” said Ding Shuang, senior China economist at Citigroup Inc in Hong Kong, who previously worked at the International Monetary Fund. Yesterday’s data suggest that a “gradual deceleration of economic activity continued at the beginning of the year,” Ding said.China’s government-sponsored PMI has stronger representation of large companies and state-owned enterprises that serve the domestic market than the one prepared by Markit and HSBC, according to Louis Kuijs, chief China economist at Royal Bank of Scotland Group in Hong Kong. The decline in January’s PMI was mainly due to the approach of the Lunar New Year holiday, Zhao Qinghe, a statistician at the statistics bureau, said in a statement yesterday. China’s operating environment for production will improve in 2014, Zhao said.Bank of America Corp analysts urged reading the January and February PMI figures “with a grain of salt” because of production slowdowns related to workers returning home for the week-long festival. “We do not think a notable growth slowdown is evident at present,” Hong Kong-based economists Xiaojia Zhi, Ting Lu and Sylvia Sheng wrote in a January 29 report.Citigroup’s Ding said the decline in January’s official PMI is “partially seasonal” because of the holiday, whose timing shifts every year. Last year, the PMI fell to 50.4 in January and 50.1 in February, when the holiday took place. The index rose to 50.5 in January 2012, when that year’s new year festival occurred, from December 2011’s 50.3 and November 2011’s reading of 49.Reports yesterday from China and South Korea point to a slowdown in global demand. China’s PMI survey showed export orders shrinking at a faster pace, with a reading of 49.3, the lowest since July. South Korea exports unexpectedly fell 0.2% last month from a year earlier, compared with the median estimate for a 1.5% increase in a Bloomberg News survey of analysts.China’s economy grew 7.7% in 2013, the same rate as in 2012. Growth is forecast to be 7.4% this year, the slowest pace since 1990, based on the median estimate in a Bloomberg News survey. China Credit Trust Co reached an agreement this week to repay bailed-out trust holders in a high-yield product whose threatened failure spurred concern that financial stresses and defaults will mount in the nation’s $1.7tn trust industry.