Manufacturing Sectors in China Set to Contract in January

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Manufacturing Sectors in China Set to Contract in January
Manufacturing Sectors in China Set to Contract in January

Manufacturing Sectors in China Set to Contract in January

As the preliminary version of HSBC’s purchasing managers’ index declined to 49.6 this month from December’s 50.5 reading, the surveys show that Chinese manufacturing looks set to contract in January. According to the market observers, it will be happening for the first time in six months. This is also a major concern for the newly appointed president of the country.

This is quite disappointing as earlier last year McKinsey Quarterly had reported that China’s emergence as a manufacturing powerhouse was astonishing in the last two decades. The organization had then said that China was in seventh place, trailing Italy as recently as 1980; however, it not only crossed all of them but even the U.S. to become a leading one overtaking the United States in 2011.

Now that the data is showing that manufacturing sector is slowing down in China, its impact is now visible in various other regional economies as well. The HSBC’s purchasing managers’ index declined to 49.6 this month, which is the lowest reading since July’s 47.7 shows that the country’s manufacturing sector is set to contract in January.

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Chinese Manufacturing Sector’s Decline is a Concern for the Communist Party of China
Additionally, the report adds to recent signs that Chinese economy is decelerating and that is a major concern for China’s communist leaders who want to bring in sweeping reforms while keeping growth ticking along. The government even injected heavy investments when it brought in fifty billion dollars to boost the market.

The slower manufacturing sector also seems to have impacted China’s economy, which has slowed a little and expanded 7.7 percent last year. Though this growth rate is not bad, it is indeed slow for the country which saw close to double digit growth for close to two decades. China is still able to experience a growth rate which is better than other giants like the U.S., Japan, India, EU.

However, according to some market observers, the concern is that China is facing unexpected decline. They believe that if this continues it will have political implications for the country. Now it looks like the country is looking for major changes in export policies. The recent decline in exports and stress on local consumption is an indication.
The recent survey also showed that factory output sub-index fell to a three-month low. A similar pattern was seen when new orders and new orders for export both decreased.

To contact the reporter of this story: Jonathan Millet at john@forexminute.com