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China Dec HSBC factory PMI contracts to 7-month low

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Activity in China's factory sector shrank for the first time in seven months in December, a private business survey showed on Wednesday, highlighting the urgency behind a series of surprise easing moves by Beijing in the past two months.

[SHANGHAI] Activity in China's factory sector shrank for the first time in seven months in December, a private business survey showed on Wednesday, highlighting the urgency behind a series of surprise easing moves by Beijing in the past two months.

The weak performance will add to the debate over whether Beijing needs to engage in more policy easing or fast-track market reforms to stimulate demand - or both.

The final HSBC/Markit Purchasing Managers' Index (PMI) for December came in at 49.6, just below the 50.0 level that separates growth from contraction. The number was slightly higher than a preliminary "flash" reading of 49.5 but down from the final 50.0 in November.

Total new orders contracted for the first time since April, albeit slightly, although new export orders increased.

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Highlighting soft demand, output prices declined for the fifth consecutive month, with many companies surveyed saying they were cutting prices due to increased competition.

This in turn prompted firms to reduce output for the second consecutive month, although the rate of contraction was tiny.

Employment continued to weaken, extending the sequence of job shedding to 14 months, although the rate of contraction slowed.

Hurt by a sagging property market, unsteady exports and cooling domestic demand and investment, China's economic growth is expected to slow to a 24-year low of 7.4 per cent this year, although surprisingly weak fourth-quarter performance has some reconsidering whether that might be too optimistic.

The series of weak data - including rising deflationary pressures, sliding industrial profits and increasing non-performing loans - highlights a policy challenge for Beijing in 2015, which needs to not only encourage lending by banks through accommodative monetary policy, but also find a way to stimulate genuine demand.

The central bank unexpectedly cut interest rates in late November for the first time in more than two years in bid to bring down borrowing costs and avert a sharper economic slowdown. It has also loosened some lending restrictions.

REUTERS

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