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Jan 04, 2016 08:14 AM IST | Source: CNBC

Caixin PMI falls to 48.2 in December, below expectations

"Data suggested that client demand was weak both at home and abroad, with new export business falling for the first time in three months in December," the data release said.

Caixin PMI falls to 48.2 in December, below expectations

The Caixin Purchasing Managers' Index (PMI) fell to 48.2 in December, from 48.6 in November, contracting for a tenth month and coming in below a Reuters poll forecast for 49.0.

"Data suggested that client demand was weak both at home and abroad, with new export business falling for the first time in three months in December," the data release said.

"As a result, manufacturers continued to trim their staff numbers and reduce their purchasing activity in line with lower production requirements."

Levels above 50 indicate expansion in the sector, while levels below indicate contraction.

The Caixin PMI is a closely-watched gauge of nationwide manufacturing activity, which focuses on smaller and medium-sized companies, filling a niche that isn't covered by the official data.

Official PMI data released over the weekend showed the index was at 49.7 in December, in line with forecasts from a Reuters poll and up a tad from November's 49.6.

The official non-manufacturing PMI, which tracks the services sector, rose to 54.4 in December from 53.6 in November.

Tepid activity reflected by the surveys has also hurt the financial performance of companies in the mainland: Chinese industrial companies' profits fell 1.4 percent on year in November, according to data released in December, marking a sixth straight month of declines.

Analysts have raised a slew of concerns about the Chinese economy as it transitions from a manufacturing base to services; The country is hooked on debt, the shadow banking sector has imploded, the property market sometimes shows signs of a bubble and major industries are slowing.

Chinese economic growth fell to 6.9 percent in the third quarter, dropping below the 7 percent mark for the first time since the global financial crisis of 2008-2009.

China's growth rate is expected to be 6.8 percent in 2015, according to the International Monetary Fund's latest "World Economic Outlook" report published in October.

Although robust, that growth rate has been slowing down year-on-year. In 2013, China's economy grew 7.7 percent, but in 2014 China's GDP expanded by 7.3 percent. The IMF predicted further slowing growth in 2016, of 6.3 percent.

To counter slowing growth, policy makers have taken a slew of easing measures, including a slew of interest rate and reserve requirement ratio cuts from the central bank, the People's Bank of China.

"Looking into the new year, we expect policy to maintain a loosening bias on the full year basis (policy stance has been very supportive lately and it's unrealistic to expect to become looser in the coming month)," Goldman Sachs said in a note over the long holiday weekend. "Activity growth may weaken again in the first quarter of the year, and bumpy growth deceleration will likely continue for the full year of 2016. We expect supportive policy measures to provide a key buffer to growth deceleration."

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