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GLOBAL ECONOMY-China drags on otherwise buoyant Asia factory sector
February 3, 2014 / 6:28 AM / 4 years ago

GLOBAL ECONOMY-China drags on otherwise buoyant Asia factory sector

* Most Asia manufacturing gauges post solid growth, China stutters

* China manufacturing PMIs slip to 6-month lows

* China January services growth slows to 5-year low

* India manufacturing PMI rises to highest since March 2013

* South Korea factory expansion fastest in 8 months

By Koh Gui Qing

BEIJING, Feb 3 (Reuters) - Asian manufacturing outside China showed signs of solid expansion in January as order books swelled, but factories in the region's giant struggled for growth, heightening concerns about an economic slowdown.

China's service-sector growth also slowed down - to a five-year low - in another sign of the stuttering economic momentum that has been a factor behind the emerging markets sell-off of the past two weeks.

Purchasing managers indexes (PMIs) on Monday showed Indian manufacturing running at its strongest pace since March 2013 and in South Korea the sector was expanding at its fastest in eight months.

Last week, a Japan PMI rose to its highest level in nearly eight years as new orders expanded at their fastest pace on record - a sign of strong domestic demand before prices rise with an increase in a domestic sales tax in April.

But China PMIs, released since late last week, painted a more subdued picture.

The Markit/HSBC manufacturing PMI for China fell to a six-month low of 49.5 in January, suggesting the overall factory sector contracted from December. A similar government measure also fell to a six-month low, although it indicated the sector was still expanding modestly, and both reports showed new orders softening.

On Monday, a government PMI on the services sector fell to 53.4 in January, firmly above 50 that indicates expansion but still the index's lowest level since December 2008.

Asian shares lost ground on Monday as strains in emerging markets showed little sign of abating.

The China PMIs provided further reminders for markets of the pressures on the world's top emerging market economy as Beijing tries to push major reforms without tamping down growth too much.

SUSTAINABLE GROWTH

China's government wants to reduce a heavy reliance on the investment and exports that have fuelled breakneck economic growth in the past three decades in favour of consumption and services, which it thinks will provide lower but more sustainable growth.

Barclays analysts, referring to manufacturing, said they estimated the seasonal impact of Lunar New Year holidays was minimal on China's factory sector.

"In our view, much of the decline reflects (a) downbeat demand outlook and suggests continued softening in growth momentum," Jian Chang and Jerry Peng said in a note.

Euro zone and U.S. purchasing managers' factory reports due later on Monday are expected to show continued solid expansion in both regions.

India's factory PMI rose in January to 51.4 from 50.7 in December as new orders growth picked up. Both the main and the new orders index rose to their highest levels since March last year.

South Korea's PMI showed the factory sector expanded at its fastest pace in eight months, rising to 50.9 in January from 50.8 in December.

An Indonesian PMI showed a slight pick-up in factory activity to 51.0 in January from 50.9 in December as other data showed the country achieved a trade surplus in December for the third straight month.

Last week, Markit/JMMA reported that its Japan factory PMI rose to a seasonally adjusted 56.6 in January from 55.2 in December.

"Evidence from panellists suggested that the upcoming rise in the sales tax was a key factor driving the recent expansion, as customers order early to avoid the higher tariff," said Claudia Tillbrooke, economist at Markit. The country's national sales tax will rise to 8 percent in April from 5 percent.

"However, the continued expansion of employment, suggests a degree of confidence in the longevity of the current upturn."

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