China January official PMI likely to show sixth month of contraction

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[January 27, 2016] BEIJING (Reuters) - Activity in China's vast factory sector likely contracted for the sixth consecutive month in January, a Reuters polled showed, underlining a weak start for the year and heightening concerns of a deeper economic slowdown.

The official manufacturing Purchasing Managers' Index (PMI) likely edged down to 49.6 in January from December's 49.7, according to a median forecast of 20 economists in a Reuters poll.

A reading below 50 index points suggests a contraction in activity, while a reading above indicates an expansion on a monthly basis.

As the first indication of economic sentiment in 2016, the headline data might be distorted by the week-long Lunar New Year break, which begins on Feb. 7, analysts said.

"Manufacturers shut factories weeks before China's Lunar New Year Holiday, which would drag down factory output," said Zhang Yiping, an economist of China Merchants Securities in Shenzhen.

"We expect China's economic growth to show a certain degree of slowing down in the first quarter."

Aside from seasonal factors, analysts noted that China's economy would continue to fight headwinds from industrial overcapacity, high debt and a cooling property market this year.

China's economic growth cooled to 6.9 percent in 2015, the slowest pace in 25 years, adding pressure to policymakers who are already struggling to restore the confidence of investors after a renewed plunge in stock markets and the yuan currency.

China markets began the year with a series of precipitous stock market declines and a sharp depreciation in the yuan. Selling pressure has persisted as economic data confirmed slowing growth and deteriorating business conditions.

The official PMI number will be released on Feb. 1, along with the official services PMI.

(Reporting By Xiaoyi Shao and Nicholas Heath; Editing by Sam Holmes)

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