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Tuesday, March 1, 2016, 15:51

China's factory, service sectors slip

By Agencies
China's factory, service sectors slip
This undated file photo captures a worker cutting steel bars on the production line of a mill in Lianyungang, Jiangsu province. (Photo / China Daily)

BEIJING - China's manufacturing activity contracted for the seventh straight month in February, signalling persistent weakness, official data showed on Tuesday.

The purchasing managers' index (PMI) was at 49, down from January's 49.4, according to the National Bureau of Statistics (NBS) and the China Federation of Logistics and Purchasing. A reading above 50 indicates expansion, while a reading below 50 reflects contraction.

It was the lowest reading since November, 2011, which was also 49.0.

NBS statistician Zhao Qinghe attributed the retreat to slowing factory activity during the Chinese Lunar New Year holiday in early February, as well as the trimming of industrial capacity.

In breakdown, the sub-index measuring production stood at 50.2, down 1.2 points from a month earlier, and that for new orders settled at 48.6, down 0.9 points.

A separate survey by financial information service provider Markit sponsored by financial media company Caixin also showed deterioration in Chinese manufacturers' operating conditions.

The Caixin General China Manufacturing Purchasing Managers' Index (PMI), edged down to 48 in February from January's 48.4.

"The index reading for all key categories, including output, new orders and employment, signaled that conditions worsened, in line with signs that the economy's road to stability remains bumpy," said He Fan, chief economist at the Caixin Insight Group.

The disappointing data came after China's economy grew by 6.9 percent year on year in 2015, its lowest annual expansion in a quarter of a century.

China's factory, service sectors slip
Chart showing China's purchasing managers' index in the last four years, according to official data. (Photo / AFP)

China's factory sector has been under pressure from weak demand at home and abroad and massive overcapacity in key industries such as steel and coal, making it highly resistant to the impact of six central bank interest rate cuts and a spate of other support measures since November 2014.

New export orders and total orders continued to shrink in February, prompting employers to shed jobs.

Industrial profits fell 2.3 percent in 2015 after rising 3.3 percent in 2014.

In addition, some manufacturers in capital-intensive sectors are struggling with heavy debt loads, which are becoming increasingly difficult to repay as they have to constantly cut prices to win sales. Last year witnessed a rash of bond defaults by steel, cement and chemical firms. Chinese factory gate prices fell for the 47th straight month in January.

The government has made cutting overcapacity in steel and other "old economy" sectors a priority this year.

China said on Monday it expects to lay off 1.8 million workers in the coal and steel industries, or about 15 percent of the workforce, as part of efforts to reduce industrial overcapacity, but no timeframe was given.

Recent tax policy changes have also raised concerns that China hopes to export more of its excess industrial capacity abroad, further worsening global gluts of key chemical and steel products.

China's economic growth cooled to 6.9 percent in 2015, the slowest pace in 25 years.

Late on Monday, China's central bank reduced the amount of cash that banks must hold as reserves for the fifth time since Feb. 2015, as regulators move to get more cash into the system to cushion painful structural reforms.

Service sector

China's service sector activity continued to slip in February, official data showed on Tuesday.

The PMI for the non-manufacturing sector came in at 52.7 in February, down from 53.5 in January, according to a report released jointly by the National Bureau of Statistics and the China Federation of Logistics and Purchasing.

A reading above 50 indicates expansion, while a reading below 50 represents contraction.

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