By  on January 23, 2014

BEIJING — A key indicator of China's manufacturing output fell unexpectedly in January to a six-month low, fueling further concern over the country's potential as a continued growth leader this year.

According to a release on Thursday, the flash Markit/HSBC Purchasing Managers' Index fell to 49.6 in January down nearly a point from the December's final reading of 50.5. An index reading below 50 indicates factory production is contracting rather than expanding, a worrying note to those hoping China's economic health was firmly in hand.

In a note with the release, HSBC's lead China economic Qu Hongbin, said weaker domestic demand was largely to blame for the poor showing.

"This implies softening growth momentum for manufacturing sectors, which has already weighed on employment growth," Qu explained. "As inflation is not a concern, the policy focus should tilt towards supporting growth to avoid repeating growth deceleration," from last year.

The HSBC flash MPI is based on a survey of more than 420 manufacturers in China and is widely considered an accurate marker of manufacturing trends. The latest news comes on the heels of also somewhat unexpected overall economic growth data.

On Monday, the National Bureau of Statistics reported the Chinese economy grew by 7.7 percent last year, just slightly ahead of government targets and in spite of trickier economic conditions like wavering manufacturing output and consumer demand. The central government had project 7.6 percent overall growth for 2013. For the year ahead, the forecast has been slowed even more – the World Bank now predicts 7.5 percent growth for China in 2014.

The latest batch of economic date underscores ongoing problems in the world's second-largest economy, with little tangible understanding of how the country's leadership plans to steer the ship. The central government has promised deep reform measures to shore up growth and development, but has yet to reveal precise details on what that means.

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