China factory activity contracts in Dec as slowdown deepens

SHANGHAI, Dec 31 (Reuters): Activity in China's factory sector shrank for the first time in seven months in December, a private survey showed on Wednesday, highlighting the urgency behind a series of surprise easing moves by Beijing in the past two months.

The weak performance will add to the debate over whether Beijing needs to roll out more support measures to avert a sharper economic slowdown or fast-track market reforms to stimulate demand - or both.

The report puts a final sluggish stamp on what has been a surprisingly grim fourth quarter for the world's second-largest economy, which is expected to grow at its slowest pace this year in nearly a quarter of a century.

"Domestic demand led the slowdown as new orders contracted for the first time since April 2014. Price contraction deepened," said Qu Hongbin, chief economist for China at HSBC.

"We believe that weaker economic activity and stronger disinflationary pressures warrant further monetary easing."

The final HSBC/Markit Purchasing Managers' Index (PMI) for December came in at 49.6, just below the 50.0 level that separates growth from contraction. The number was slightly higher than a preliminary "flash" reading of 49.5 but down from the final 50.0 in November.

Total new orders contracted for the first time since April, albeit slightly, although new export orders increased.

Highlighting soft demand, output prices declined for the fifth consecutive month, with many companies surveyed saying they were cutting prices due to increased competition.