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Published on : Feb 02, 2015

The Factory sector in China once more exhibited a slump for the second straight month in January since the current year witnessed a challenging beginning for the 2nd largest economy of the world. The underperformance coupled with the shrinking factory employment that has been taking place over the last fifteen months will be an addition to the debate pertaining to how and whether or not Beijing will take to policy easing, with most of the bank economists showing greater preference for a combination of higher liquidity with rate cuts to give a boost to productive investment. 

The final HSBC Purchasing Managers' Index (PMI) for the month of January came to 49.7 on a seasonally managed and adjusted basis, which is basically a bit less than the 50 level which distinguishes contraction from growth. The figure was a bit lesser than a preceding "flash" that read 49.8 but greater than the final 49.6 in December. 

According to China chief economist at HSBC, aggregate demand of the manufacturing sector is still quite weak and stronger monetary and fiscal easing steps will be required since this will eventually ensure that there is no steep decline in growth in the forthcoming years. 

The official Purchasing Managers’ Index which is primarily biased towards large Chinese factories unexpectedly exhibited that manufacturing activity declined for the very first time in nearly two to two and a half years and firms witnessed greater slowdown ahead.

The Policy rate cut of November was preceded by complaints by Premier Li about the absence of credit flow to businesses. However, these will be looked into for similar hints for gauging the possibility of a bazooka stimulus.