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Falling CPI may herald economic weakening

Updated: 2014-01-23 17:24
By Xin Zhiming ( chinadaily.com.cn)

The fall in the flash Markit/HSBC Purchasing Managers' Index (PMI) in January is a fresh reminder of the country's growth challenge.

China's GDP expanded by 7.7 percent year-on-year in 2013, the lowest pace in 14 years. The January PMI reading, which is 49.6 percent, may confirm the weakening trend of the economy. The line of 50 separates economic expansion from contraction.

Many economists have anticipated a weak economy this year because demand remains weak while new sources of growth are lacking.

Seen from sub-indexes, the trend of weakening is more obvious.

The new orders sub-index was 49.8, the first contraction in six months. Employment sub-index also dropped to the lowest level in six months.

Policymakers may react to stimulate the economy if economic slowdown starts to affect employment, as past experiences have shown.

What we are not 100 percent sure of is whether the Spring Festival factor has distorted the statistics. The festival, which normally reduces economic activity, falls in January this year, while it was in February last year.

We are awaiting a more detailed report from the index compiler when the final reading comes out at the end of this month, so that it can be clearer whether the trend of economic weakening is entrenched or it is but a seasonal distortion.