Index shows deeper Chinese downturn

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A Chinese factory gauge fell to a seven-month low in December, suggesting further stimulus is needed to halt a slowdown in the world's second-largest economy.

The preliminary Purchasing Managers' Index from HSBC Holdings and Markit Economics was at 49.5, below the median estimate of 49.8 in a Bloomberg survey and lower than last month's 50. Numbers below 50 indicate contraction.

The reading suggests a downturn deepened this month even after efforts by the central bank to ease monetary conditions.

These included a cut to benchmark interest rates last month.

Readings of output, new orders, employment and input and output prices all declined, the report showed.

"They are moving to more of a services-based consumption model and that's a slower growth model than the hyper-growth of manufacturing that led exports and investment," said Stephen Roach, a senior fellow at Yale University and former non-executive chairman for Morgan Stanley in Asia.

China's economy slowed last month as factory shutdowns exacerbated a fall in demand. Bloomberg's gross domestic product tracker was 6.78 per cent year-on-year last month, down from 6.91 per cent in October and a fourth month below 7 per cent, according to a preliminary reading.

Factory production rose 7.2 per cent from a year earlier, retail sales gained 11.7 per cent, and investment in fixed assets expanded 15.8 per cent in January through November from a year earlier, official data showed last week.

The Government ordered some factories to close in Beijing and surrounding provinces during the Asia-Pacific Economic Co-operation forum early last month to curb pollution.

Yesterday's report, known as the Flash PMI, is based on an average 85 per cent to 90 per cent of responses to surveys sent to purchasing managers at more than 420 companies.