China Jan official manufacturing PMI misses estimates at 49.4

China’s vast manufacturing sector remained sluggish at the start of 2016, twin purchasing managers’ index (PMI) surveys released on Monday (Feb 1) showed, underscoring stubborn weakness in the world’s second-biggest economy.

It was also the sixth month in succession that the index came in below the 50 level that separates expansion from contraction, and marked the steepest decline in activity seen since August 2012.

NBS statistician Zhao Qinghe attributed the retreat to slowing factory activity ahead of the Spring Festival, which falls in early February this year, as well as China’s ongoing campaign to resolve excessive capacity. Overall demand from both home and overseas continued to stand in deflationary territory, forcing companies to lay off more workers in January.

China’s blue-chip CSI300 index was down 1.5%, at 2,901.37 points, by the lunch break, while the Shanghai Composite Index lost 1.8%, to 2,688.87 points.

The subindex measuring new orders dropped to 49.5 from 50.2 in December, while the production subindex decreased to 51.4 from 52.2, the statistics bureau said.

With the industrial sector in China continuing to struggle despite significant stimulus, IG market analyst Angus Nicholson said Chinese banks are likely to suffer from a large number of bad loans.

Meanwhile, the official non-manufacturing Purchasing Managers’ Index (PMI) fell to 53.5 from December’s 54.4, showing a slight slowdown in services activity growth.

Chinese stocks fell, extending the steepest monthly selloff since the global financial crisis, after an official manufacturing gauge missed estimates and PetroChina Co. said annual profits may have slumped as much as 70 percent.

To start new growth engines, the government has pinned its hopes on supply-side structural reform, which focuses on better provision of high-quality goods and services and lower costs for businesses.