China's Woes Persist As Manufacturing Slumps

Manufacturing activity in China has contracted for a sixth consecutive month, with analysts saying the sprawling economy had too much capacity and too little demand.

The official Purchasing Managers' Index (PMI) for January fell to 49.4. It (Other OTC: ITGL - news) was the lowest score since mid-2012, and slightly below forecasts of 49.6.

Any PMI reading below 50 signals contraction, while a score above 50 on the 100-point scale is an indicator of growth.

In a report on the figures, ANZ Bank said: "The manufacturing sector will likely face a tough year ahead on the back of overcapacity, weakening global demand and government plans to tackle corruption."

Statisticians quoted by the state-run Xinhua news agency blamed the sluggish activity on the Chinese New Year holidays in the coming days.

The PMI (Other OTC: PMIR - news) reading for China's services industry offered slightly better reading. Although the index did slip to 53.5 in January from 54.4 in December, it does represent growth.

Shanghai's Composite Index fell by 1.6% on the news.

It follows a grim month for the Chinese stock markets and a disappointing year for growth - both of which sent jitters worldwide.

Beijing posted growth figures of 6.9% for 2015, the weakest for 25 years, while January was the worst month for China's benchmark indexes since October 2008 - wiping 12 trillion yuan (£1.28bn) off the value of the stock market.

China's PMI readings are going to be followed by results for Europe and the US later in the day, with manufacturing expected to stagnate in the 27-nation bloc and contract across the Atlantic (Shanghai: 600558.SS - news) .

Results have already been released across Asia - with India's PMI jumping to a four-month high of 51.1 in January, compared to a 28-month low of 49.1 in December.

Exports have helped Japan continue expanding, but it was bad news for South Korea - as exports there have suffered their steepest annual drop since August 2009.

Seoul mainly relies on China, the US and the EU for sales of its smartphones, flat screen TVs and cars - and bad news for Beijing does not bode well for South Korean companies, as Chinese customers represent 25% of demand for exports.

China has been looking to give its economy a makeover in recent years - pushing away from the exports of the past to focus on satisfying the demand of domestic customers.

But the transformation has proven difficult, with recent figures making investors nervy.