China's factory activity shrinks again in January, demand still weak

China's manufacturing activity contracted for the fourth straight month in January, an official factory survey showed on Wednesday, suggesting the sprawling sector was struggling to regain momentum at the start of 2024.

The official purchasing managers' index (PMI) rose to 49.2 in January from 49.0 in December, below the 50-mark separating growth from contraction and was in line with a median forecast of 49.2 in a Reuters poll.

The data provides the first official snapshot of how the world's No.2 economy has started off the new year after a shakier-than-expected post-COVID recovery. The latest figure is also affected by the Lunar New Year which will fall on Feb. 10 this year, as factories may shut earlier and send workers back home ahead of the holiday.

January's new orders sub-index was at 49.0, contracting for the fourth month, according to the NBS survey. Weak external demand also dragged on manufacturing activity, with the new export orders index registering at 47.2, contracting for the 10th straight month.

To spur growth, China's central bank governor Pan Gongsheng unexpectedly announced a cut to banks' reserve requirement ratio at a press conference last week. Authorities face a daunting task as they try to revitalise the economy in the face of a property downturn, local government debt risks, deflationary pressures and weak global demand.

The official non-manufacturing purchasing managers' index (PMI), which includes services and construction, rose to 50.7 from 50.4 in December, the highest since September last year, according to NBS.

The composite PMI, which includes manufacturing and services, was at a four-month high of 50.9 in January compared with 50.3 the previous month. The International Monetary Fund on Tuesday lifted China's growth forecast this year to 4.6 per cent from 4.2 per cent in October, thanks to the significant fiscal support from the authorities and a less-severe-than-expected slowdown in the property sector.

China won't release its 2024 growth target till March, but policy insiders expect Beijing to maintain a similar growth target to last year of around 5 per cent.