CHINA’S factory activity sputtered in December, underlining the challenges facing the country’s manufacturers as they fight rising costs and softening demand in a cooling economy.

    After a rough 2014, the world’s second-largest economy looks set to start the new year on a weak note, reinforcing expectations that the government will roll out more stimulus to avert a sharper slowdown which could trigger job losses and debt defaults.

    A property slump is expected to last well into 2015, companies will continue to struggle to pay off debt and export demand may remain erratic, leaving only the services sector as the lone bright spot in the economy.

    China’s official Purchasing Managers’ Index (PMI) slipped to 50.1 in December from November’s 50.3, a government study showed Thursday, its lowest level of the year and clinging just above the 50-point level that separates growth from contraction on a monthly basis.

    “This indicates that industrial growth is still in a downward trend, but the pace (of declines) is slowing,” Zhang Liqun, an economist at the Development Research Center, said in a statement accompanying the report.

    “The current economic situation is in the process of returning to stability from slowing down,” Zhang said.

    A similar private survey Wednesday showed activity shrank for the first time in seven months in December. That survey focuses on smaller companies, which are facing greater strains, notably higher financing costs and problems getting loans.

    The official survey looks more at larger, State-owned firms.

    Many analysts expect economic growth in the fourth quarter to slow only marginally from 7.3 percent in the third quarter, though a raft of weak data suggest that may be too optimistic.

    That means full-year growth will undershoot the government’s 7.5 percent target and mark the weakest expansion in 24 years.

    In a bid to spur growth and keep borrowing costs down, the central bank unexpectedly cut interest rates for the first time in more than two years Nov. 21. It has also injected more funds into the banking system in recent months and relaxed restrictions to persuade risk-averse banks to lend more.

    In addition, the economic planning agency has been approving more infrastructure projects.

    While its recent moves may have bought the central bank some time to see if conditions improve, many economists still expect more interest rate cuts as well as reductions in banks’ required reserve ratios this year, perhaps as soon as the first quarter.

    That would allow banks to lend more money at more attractive rates, but authorities will still need to find a way to stimulate genuine demand at a time when domestic demand is sluggish and many businesses are in no mood to expand.

    Some hopeful signs have emerged from recent data, though analysts say they may only partly offset the downdraft from the weak property market and its knock-on effect on other industries, which is weighing on demand for everything from furniture and glass to cement to steel.

    Growth in China’s services sector, which accounts for close to half of the economy, remains robust, though firms are still shedding jobs. The official non-manufacturing PMI rose to 54.1 in December from November’s 53.9.

    Export demand may also be bottoming out, with a stronger U.S. economy helping to offset weakness in Europe and Japan.

    (SD-Agencies)