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Chinese Manufacturing Drops Again in December

No matter which PMI you use, manufacturing activity shrank again last month in the world's second-largest economy, marking 10 straight months of decline and forcing Chinese leaders to lower expectations.

BEIJING — China’s factory activity shrank further in December, according to data released Monday in a private survey, the 10th consecutive month of contraction with the world’s second-largest economy set to post its weakest growth in a quarter of a century.

The Caixin Purchasing Managers’ Index (PMI), tracking activity in the factory and workshop sector, came in at 48.2 in December, down from 48.6 the previous month, the Chinese media group said.

The sector is key to the health of the economy, which is a major driver of global expansion. A PMI figure above 50 signals expanding activity while anything below indicates shrinkage.

The fall in PMI “shows that the forces driving an economic recovery have encountered obstacles and the economy is facing a greater risk of weakening,” He Fan, an economist with Caixin Insight Group, said in the statement.

Overseas uncertainties are rising as the U.S. Federal Reserve has started hiking interest rates, He warned. “The government needs to pay more attention to external risk factors in the short term and fine-tune macroeconomic policies accordingly so the economy does not fall off a cliff.”

China’s economy grew at its slowest pace in 24 years in 2014 and eased further in 2015, as Beijing has struggled to transform the country’s growth model to a slower but more sustainable one driven by consumption rather than infrastructure investment.

In July-September, the country logged its worst economic performance since the global financial crisis, with growth of 6.9%.

Caixin’s December reading was the 10th consecutive month the survey, compiled by financial information provider Markit, showed contraction. Falling production was driven in part by a further fall in total new work, leading firms to continue to cut jobs.

On Friday, an official PMI survey — which has a larger sample base — also showed shrinkage at 49.7, although it improved from November’s 49.6.

Economists have warned of downside risks faced by the Chinese economy even though the government is likely to achieve its 2015 growth target of "about 7%.”

President Xi Jinping said in November that annual expansion of only 6.5% would be enough to meet the government’s goals, the clearest signal yet Beijing will lower its growth targets for the coming years.

Copyright Agence France-Presse, 2016

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