Chinese Manufacturing Contracts

HSBC China PMI fell to 49.5 in January, from a reading of 50.5 in December.

This is the first contraction in six months.

The decline in PMI was attributed to weaker expansions in new business and output. New export orders fell for the second straight month.

Moreover, firms cut jobs at their fastest pace since March 2009. “Job shedding was generally attributed by panellists to the non-replacement of voluntary leavers as well as reduced output requirement,” according to the press release.

This is also lower than the flash reading of 49.6. The weaker than expected number was attributed to the Lunar New Year holiday.

“A soft start to China’s manufacturing sectors in 2014, partly due to weaker new export orders and slower domestic business activities during January,” said Hongbin Qu, chief economist China at HSBC, in a press release. “Policy makers should pay attention to downside risks and pre- emptively fine-tune policy to steady the pace of growth if needed.”

The Aussie dollar tumbled on the news.

Chinese economic growth slowed to the lowest level since 1999, in 2013.

A further contraction in manufacturing would only add to signs of an economic slowdown in China.

Here’s a look at the trajectory of PMI:

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