January 28, 2014 / 7:26 AM / 5 years ago

China official factory PMI seen at six-month low

BEIJING (Reuters) - China’s factory activity may have cooled in January to a six-month low as demand weakened, a Reuters poll showed, underscoring views that a modest slowdown in the world’s second-largest economy has continued into the beginning of 2014.

A worker operates a machine to cut a pipeline at a factory in Qingdao, Shandong province November 29, 2013. REUTERS/China Daily

China’s official manufacturing purchasing managers’ index likely dipped to 50.5 in January from December’s 51, according to the median forecast of 11 economists polled by Reuters.

A reading above 50 indicates expanding activity while one below that level points to a contraction.

A preliminary survey released last week by HSBC and Markit Economics showed that the factory sector activity contracted for the first time in six months due to weaker domestic and export demand.

“Weak demand and employment around the Lunar Chinese New Year, which comes earlier than the previous year, weighed on production activities in January,” said Gao Yuan, an economist at Haitong Securities in Shanghai.

“Apart from seasonal factors, the economy itself is facing downward pressures,” Gao added.

A Reuters visit to southern China’s manufacturing heartlands this month showed many factories have closed earlier than usual for the upcoming Lunar New Year, the nation’s biggest holiday, discouraged by weak orders and rising costs.

Many economists have said China’s economy was likely to show weaker momentum this year as policymakers push through structural reforms and seek to curb debt levels to head off financial risks.

Analysts in the latest Reuters poll forecast China’s annual GDP slowing to 7.4 percent in 2014 after growing 7.7 percent in 2013, narrowly missing market forecasts for growth to slide to a 14-year trough of 7.6 percent but above the government’s target of 7.5 percent.

Sources with top think-tanks have said the government is likely will stick with a 7.5 percent target this year, indicating the leadership is still keen to keep the economy on an even keel as they push reforms.

Premier Li Keqiang said last week that China’s economy faces a severe time this year and the government will be watching trends closely to ensure stable growth.

Still, some analysts warned on reading too much on January’s figure as the different timing of the Lunar New Year from year to year makes seasonal adjustment less accurate for the data.

The official PMI figures will be released on Saturday, February1 at 9:00 am (0100 GMT). The final HSBC/Markit PMI is due on January30 at 9:45 am.

Reporting By Xiaoyi Shao and Jonathan Standing; Editing by Kim Coghill

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