BEIJING: Manufacturing activity in China contracted at its fastest pace in more than three years in January, government data showed on Monday, underlining weakness in the world’s second-largest economy.

The official Purchasing Managers’ Index (PMI), which tracks activity in factories and workshops, fell to 49.4, figures from the National Bureau of Statistics (NBS) showed.

It was the lowest figure since 49.2 in August 2012, and was below the median forecast of 49.6 in a Bloomberg survey of economists.

PMI readings above 50 signal expanding activity, while anything below indicates shrinkage, and investors watch the figures closely as the first available indicators of the country’s economic health each month.

Chinese shares closed down as the weak figures weighed on sentiment, with the benchmark Shanghai Composite Index falling 1.78 per cent and the Shenzhen Composite Index, which tracks stocks on the country’s second exchange, retreating 1.04pc.

The manufacturing slowdown “points to weaker growth momentum”, said Yao Zhang, China economist at Nomura Holdings in Hong Kong. “We believe economic growth may start to lose steam again, after stabilising a little.”

It was the sixth consecutive month that the official index showed contraction, which Bloomberg said was the longest such series on record.

“The manufacturing sector will likely face a tough year ahead on the back of overcapacity, weakening global demand, and government’s plans to tackle pollution,” ANZ economists Liu Ligang and Louis Lam said in a report.

China’s economy, which is a vital driver of global expansion, grew 6.9pc last year, its weakest rate in a quarter of a century.

China’s leaders — who targeted growth of “about seven per cent” — are looking to transform the economy away from the investment and exports of the past to one more oriented towards domestic consumer demand, but the transition is proving bumpy, and the growth slowdown has alarmed investors worldwide.

The private Caixin Purchasing Managers’ Index, which has a greater emphasis on smaller firms, came in at 48.4 for January, slightly up from 48.2 in December, the Chinese financial magazine said in a joint statement issued with data compiler Markit.

Published in Dawn, February 2nd, 2016