BEIJING – China’s manufacturing sector contracted for the second consecutive month in January, despite the benchmark Purchasing Managers’ Index rising by 0.1 points to 49.5, according to data published on Thursday by the National Bureau of Statistics.
A PMI reading above 50 signifies expansion while a reading below this means contraction.
Although the figure showed slight recovery and broke a downward trend which had continued for four months – analysts had predicted a further decline – it was not enough to return the sector to expansion.
The PMI in December had stood at 49.4 points, the lowest reading since February 2016 – when it had dropped to 49 – and the first contraction in manufacturing since July 2016.
The index started 2019 on a similar note to how it ended 2018, although in May last year the sector had registered a PMI of 51.9, the highest in the last five years.
The biggest slowdown continues to be seen in the Small and Medium Industries, with PMIs of 47.2 and 47.3 respectively, while the large-scale industries managed to overcome the challenges posed by the economic slowdown and the trade war with the United States – factors which have affected both exports and domestic demand – registering a PMI of 51.3 points.
In January, the sub-index for production rose to 50.9 from 50.8 in December, while the index for new orders – which covers domestic and foreign demand – continued to drop, albeit at a slower rate: it fell to 49.7, down from 49.6 in December, registering a decline for the second straight month.
NBS senior statistician Zhao Qinghe highlighted positive aspects to explain the end of a four month downward streak in the PMI: the growth in ex-factory prices of a number of products related to consumption – such as refined tea, tobacco products and textiles – and the onset of the “holiday consumption effect,” referring to the upcoming Lunar New Year and the related festive season in the country.
Zhao added that in January the number of companies affected by the costs of raw materials and the fluctuations in the yuan had gone down.
The non-manufacturing PMI continued to grow for the third consecutive month and reached 54.7, 0.9 points higher than December.
A major part of this rise was based on the growth in the service sector, which accounts for more than half of China’s GDP and registered a PMI of 53.6, a jump of 1.3 points compared to the earlier month.
However, the month ended with a decline in the construction sector which, despite being well above the contraction borderline, fell by 1.7 points to 60.9 due to seasonal factors such as the cold weather and the holidays for workers during the Lunar New Year.