Further confirmation that the boom times are over in China, with word that manufacturing there contracted in January at its fastest pace in almost three-and-a-half years.
The world’s second largest economy is under severe pressure with companies’ output suffering through falling prices and overcapacity in key sectors including steel and energy.
The only scrap of good news was that factory activity deteriorated at a slightly slower pace than in December.
In addition services – which have been a crucial source of growth and jobs for China over the past year – recorded a slight slowdown in growth.
The official Purchasing Managers’ Index (PMI) stood at 49.4 in January, compared with the previous month’s reading of 49.7 and below the 50-point mark that separates growth from contraction on a monthly basis. It is the weakest index reading since August 2012.
The PMI marks the sixth consecutive month of factory activity contraction.
The Markit/Caixin factory PMI also showed activity deteriorating, although at a slower pace than in December. The index was 48.4, higher than economists’ median forecast of 48.0, and above the December figure of 48.2.
The Markit report focuses more on small- and medium-sized firms as opposed to larger state-owned firms in the official survey.
Both the official and private factory surveys showed domestic and export demand remained weak and companies continued to shed staff.
“Electricity production remained sluggish and the crude steel output continued the weak trend in January, reflecting an ongoing deleveraging process in the industrial sectors,” said Zhou Hao, an economist at Commerzbank.
“In the meantime, China has started an aggressive capacity reduction in many sectors, which could add downward pressure on the bulk commodity prices over time.”
China’s economic growth cooled to 6.9 percent in 2015, the slowest pace in 25 years, adding pressure to policymakers who are already struggling to restore the confidence of investors after a renewed plunge in stock markets and the yuan currency.