Official index still on 50 though, the level separating expansion from contraction

Operations of businesses in China continued to expand in January but the overall expansion slowed down slightly, the National Bureau of Statistics said on Friday.

The official purchasing managers' index for China's manufacturing sector dropped by 0.2 percentage point from the previous month to 50 in January, sitting right on the line that separates expansion from contraction.

The survey on China's manufacturing and nonmanufacturing business activities was conducted before Jan 20. On that day, a highlevel expert team of China's National Health Commission confirmed human-to-human transmission of a novel coronavirus and infection of medical staff.

"As the impact of the novel coronavirus outbreak on China's manufacturing was not fully manifested during the period of the survey, we still need to further observe the trend afterward," said Zhao Qinghe, a senior statistician with the NBS.

One of the main features of the latest manufacturing PMI is that the new orders index increased for the third straight month in January, up by 0.2 percentage point from December, to 51.4. The production index, on the contrary, fell 1.9 percentage points to 51.3 over the same period. It shows the acceleration of growth of demand in the manufacturing sector and the slowing of production growth, Zhao said in a note posted on the website of the bureau.

"In the meantime, China continued to make a transition in drivers of economic growth, with the hightech sector leading the development of the country," he said.

The PMI for the high-tech manufacturing industry was 52.9, which was 2.9 percentage points higher than the manufacturing PMI. While the expansion of the high-tech manufacturing sector has continuously sped up since September, energy-intensive industries remained contracting as their PMI was 49, he said.

The nonmanufacturing business activity index increased by 0.6 percentage point from the previous month to 54.1 in January. The business activity index of the majority of service industries, including express delivery, telecommunications and banking, stood above 60, showing a boom in relevant companies and financial institutions, according to the NBS.

"The construction industry also remained prosperous as its business activity index and new orders index hit 59.7 and 53.8 respectively, demonstrating steady growth in the production and market demand in the construction industry, which was spurred by measures put in place by the Chinese government to improve weak links in infrastructure," Zhao said.

As the survey was conducted before official confirmation of the coronavirus outbreak, the results did not fully reveal the economic impact of the coronavirus, said Wen Bin, chief researcher with China Minsheng Banking Corp.

"The manufacturing PMI in January sat on the line that separates expansion from contraction, showing that the momentum of economic growth is not sufficient. After taking the coronavirus outbreak into consideration, policymakers should step up employment of countercyclical regulatory instruments," Wen said.

He advised policymakers to raise the annual fiscal deficit target to 3 percent of gross domestic product for 2020, up from 2.8 percent last year, and increase this year's special-purpose local government bonds quota to around 3 trillion yuan ($432.5 billion), compared with the 2.15 trillion yuan quota for 2019.

He is also looking forward to the People's Bank of China, the central bank, to ensure adequate liquidity in the financial system via reverse repo operations and medium-term lending facility.

"The PBOC should cut the rate on medium-term lending facility loans, which will lead to a decline in loan prime rate, a rate set by the central bank based on quotes from a panel of banks, to lower financing costs for businesses as soon as possible and stabilize financial market expectations," he said.