China's Jan factory activity stalls as virus risks grow

[BEIJING] Growth in China's factory activity faltered in January, an official survey showed, as export orders fell and an outbreak of a new virus added to risks facing the world's second largest economy, even as trade tensions with the United States eased.

The Purchasing Managers' Index (PMI) fell to 50.0 in January from 50.2 in December, China's National Bureau of Statistics (NBS) said on Friday, hitting the neutral 50-point mark that separates growth from contraction on a monthly basis.

Analysts polled by Reuters had expected the January headline reading to come in at 50.0.

More than 200 people have died from the virus in China in the past few weeks, prompting widespread transport curbs and tough public health measures that are weighing heavily on the travel, tourism and retail sectors. Analysts say the fast-spreading virus could hurt first-quarter GDP growth.

China's economic growth cooled to its weakest in nearly 30 years in 2019 amid a bruising trade war with the United States.

While the headline manufacturing PMI showed no expansion, some component indicators pointed to weakness in the sector.

New export orders slipped back into contraction after rising for the first time in over a year in December while production slowed from a multi-month high but remained in expansionary territory. Total new orders expanded at a slightly faster clip than the month before.

The sub-index for imports fell deeper into contraction.

Factories also continued to shed jobs in January, although the pace of reduction slowed.

China watchers typically advise caution in their analysis of economic data early in the year due to the effect of the week-long Lunar New Year holidays, which usually slows activity.

Many firms scale back operations or close for long periods around the holidays, which began on Jan 24 this year. This year, China's government extended the Lunar New Year holidays to limit the spread of the virus.

"Extended closures could ripple through supply chains across China and beyond," Capital Economics said in a note to clients this week.

Growth in China's services sector activity quickened in January with the official non-manufacturing PMI rising to 54.1 from 53.5 in December, a separate NBS survey showed.

But the impact of the coronavirus is not fully reflected in the survey and more observation is needed, the NBS said in a statement.

The outbreak has hit sectors including transportation, tourism, catering and entertainment as people avoid crowded areas.

Analysts estimated its impact on China's economy could be bigger than that of Severe Acute Respiratory Syndrome (Sars), which also originated in China and killed nearly 800 people globally in 2002 and 2003.

Beijing has relied more on services and consumption to offset manufacturing weakness now than then.

Growth of the world's second-largest economy slowed to 6.1 per cent last year, the weakest pace in nearly three decades, amid a bruising trade war with the United States and despite Beijing's stimulus to boost sluggish investment and demand.

REUTERS