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China Manufacturing PMI Slips To Contraction

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An index monitoring manufacturing activity in China reflected contraction in January, the latest PMI from HSBC and Markit Economics revealed on Thursday, coming in with a seasonally adjusted score of 49.5.

That was even worse than the flash estimate from earlier this month that indicated a score of 49.6, and it was down sharply from 50.5 in December.

A score above 50 signals expansion in a sector, while a score below 50 means contraction.

The contraction in the sector was the first since July, due primarily to weakness in output and new business.

"A soft start to China's manufacturing sectors in 2014, partly due to weaker new export orders and slower domestic business activities during January. Policy makers should pay attention to downside risks and pre-emptively fine-tune policy to steady the pace of growth if needed," said Hongbin Qu, Chief Economist, China & Co-Head of Asian Economic Research at HSBC in a release accompanying the data.

Firms cut their staffing levels at the quickest pace since March 2009. On the price front, average production costs declined at a marked rate, while firms lowered their output charges for the second successive month.

Production levels continued to increase in January, extending the current sequence of expansion to six months. However, the rate of growth eased to a marginal pace. While greater volumes of new work boosted production at some firms, others reduced their output amid reports of relatively subdued client demand that stemmed from fragile economic conditions, the survey showed.

Consequently, total new business was relatively unchanged from the previous month, following a five-month sequence of growth. Meanwhile, new export orders declined for the second month running in January, with surveyed firms mentioning weaker demand in a number of key export markets.

Employment levels at Chinese manufacturers fell for the third consecutive month in January, marking the quickest reduction of payroll numbers since March 2009.

Production costs declined for the first time since July 2013 in January. Moreover, the rate of input price deflation was marked overall, amid reports of lower raw material costs.

Reduced cost burdens were passed on to clients in the form of lower output charges in January and marked the second consecutive month of discounting.

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