A recent report showed that China’s manufacturing sector shrank for the fourth consecutive month in January, highlighting the urgent need for policy support for the world’s second-largest economy. The official manufacturing purchasing managers’ index (PMI) increased slightly to 49.2 in January from 49 in December, according to data from the National Bureau of Statistics released on Wednesday. This aligns with the median forecast in a Reuters poll. In addition, the official non-manufacturing managers’ index rose to 50.7 in January from 50.4 in December, helped by strength in the services industry counteracting weakness in the construction sector. A PMI reading above 50 signifies expansion in activity, while a reading below that level indicates a contraction. Among the sub-indexes for the manufacturing PMI, new orders saw a marginal increase, while production rose 1.1 percentage points. Employment for both non-manufacturing and manufacturing sectors slightly declined in December. The business activity index for the construction industry, which is part of the non-manufacturing PMI, stood at 53.9, a decrease of 3.0 percentage points. This data underscores the significant need for policy support for the Chinese economy. Pan Gongsheng, the governor of the People’s Bank of China, unexpectedly announced a reduction in the amount of liquidity that banks are required to hold as reserves. The same day, Beijing also released a new policy mandate aimed at alleviating the cash crunch for Chinese developers, who have been struggling due to the crackdown on the sector’s excessive debt. The PBOC has suggested that there is room for further monetary policy easing, indicating that reducing reserve requirements for banks will increase their capacity to extend loans and stimulate spending in the broader economy. This is a developing story, and more updates are expected in the future.
