Chinese manufacturing index at weakest since 2012

The official Purchasing Managers’ Index, which tracks activity in factories and workshops, fell to 49.4, figures from the National Bureau of Statistics showed. The Caixin Composite Output Index came in at 50.1 above the neutral 50-point level, showing that the economy has been recovering.

China’s capital outflows jumped in December, with the estimated 2015 total reaching $1 trillion according to a Bloomberg gauge, amid a 6.9 percent economic expansion previous year that was the slowest in a quarter century. European stocks retreated, while USA equity futures also declined.

Manufacturing has been under pressure for several months, as the strong dollar made United States goods less attractive, global demand weakened, and capital spending in the energy sector collapsed. The PMI slumped last month because of weak demand and efforts to reduce overcapacity, NBS said in a statement yesterday.

January also marked the seventh consecutive month of expansion in new business, with that sub-index rising to an 11-month high of 54.1 from 53.8.

“This was reflected in softer contractions in output and new orders”. It registered a 10-month low of 48.9 compared to December’s 49.5.

A similar survey released Monday showed manufacturing activity resumed expanding in January as producers recovered from the impact of floods that inundated several parts of Chennai, the auto-manufacturing hub in southern India. A measure of output climbed to a 19-month high.

The non-manufacturing PMI tracks business activities of both the service sector and the construction industry. India, on the other hand, has outpaced China with above 7 per cent annual growth.

That is good news for the Reserve Bank of India which cut rates four times past year, by a cumulative 125 basis points, to boost economic growth as inflation remained subdued. “We have services growing very nicely and the lower track of the economy, which is the industrial sector, remains in a hard position and it’s not going to get out of it quickly”, Erwin Sanft, head of China strategy at investment firm Macquarie told CNBC. “Growth of activity, order books and employment all lost momentum, but perhaps most worrying of all from a policymaker’s perspective is the intensification of deflationary pressures”.