China manufacturing sees contraction

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image captionThe manufacturing and export sectors are key drivers of China's growth

China's manufacturing sector, a key driver of its economic growth, contracted in January, an initial survey by HSBC has indicated.

The bank's Purchasing Managers' Index (PMI), a gauge of the sector's health, fell to 49.6 from 50.5 in December.

A reading below 50 shows contraction. It is the first time in six months the reading has fallen below that level.

The data highlights the challenge policymakers face as they look to the sustain China's high growth rate.

Qu Hongbin, chief economist for China at HSBC, said the contraction was "mainly dragged by cooling domestic demand conditions".

"This implies softening growth momentum for manufacturing sectors, which has already weighed on employment growth," he added.

Growth concerns

The reading comes just days after data showed that China's growth rate slowed in the last three months of 2013.

The world's second-largest economy expanded 7.7% in the October-to-December quarter, from a year ago. That was slightly down from 7.8% growth in the previous three months.

However, China's full-year growth in 2013 matched that for 2012 as its economy expanded at an annual rate of 7.7% during the year.

Despite that some analysts have warned that its pace of expansion may slow this year.

They have said that China's efforts to control rising debt levels and the shadow banking sector are likely to have an impact on its growth.

Government boost

For their part, policymakers have taken various steps to try and sustain China's high growth rates.

These include the launch of a free trade zone in Shanghai, seen as a test bed for reforms in key areas of the economy, such as the financial and telecom sectors which have been tightly-controlled until now.

media captionJohn Sudworth reports on whether the free trade zone in Shanghai can help spur a fresh wave of economic growth in China

Earlier this month, China said it will open up some telecom services within the zone, including call centres and home internet access provision, to foreign firms.

It said it will also allow foreign firms to make gaming consoles within the free trade zone and sell them across China - lifting a ban on gaming consoles that has been in place since 2000.

On Thursday, the state-owned Xinhua news agency reported that China had "approved" 12 other free trade zones in the country.

It cited a source as saying that a group of central government departments will "conduct a joint survey of the proposed zones and hammer out specific establishment plans".

However, the whole process may take more than a year, the source told Xinhua.

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