THE case for China to join the latest wave of global monetary easing has increased, with manufacturing gauges signaling the first contraction in more than two years.

    The slack performance, including a 15th month of shrinking factory employment, will add to the debate over how and whether the Central Government will accelerate policy easing, with most bank economists calling for a combination of rate cuts and increased liquidity to spur productive investment.

    The final HSBC/Markit Purchasing Managers’ Index (PMI) for January came in at 49.7 on a seasonally adjusted basis yesterday, just below the 50.0 level that separates growth from contraction. The number was slightly lower than a preliminary “flash” reading of 49.8 but higher than the final 49.6 in December.

    “Demand in the manufacturing sector remains weak and more aggressive monetary and fiscal easing measures will be needed to prevent another sharp slowdown in growth,” said Qu Hongbin, China chief economist at HSBC.

    The dour data mirrored two official reports released by the government Sunday which showed weakness in China’s manufacturing and services sectors last month.

    The official PMI — which is biased towards large Chinese factories — unexpectedly showed manufacturing activity shrank for the first time in nearly 2-1/2 years and firms saw more gloom ahead.

    “We think targeted measures remain the first policy option,” said Tim Condon at ING.

    Central banks from the eurozone to Canada and Singapore last month added monetary stimulus as slumping oil prices damp the outlook for inflation and global momentum outside the United States moderates. China’s central bank, which cut interest rates in November for the first time in two years, has since added liquidity in targeted measures rather than with follow-up rate reductions or cuts to banks’ required reserve ratios.

    “We expect such data will weaken further and push the government to take further easing actions,” said Zhang Zhiwei, chief China economist at Deutsche Bank AG in Hong Kong.

    Zhang has been among economists who said the People’s Bank of China (PBOC) would delay lowering banks’ RRRs for risk of stoking an equities bubble.

    Seasonal reasons, falling commodity prices, and weak domestic and international demand caused the decline in the manufacturing PMI, Zhao Qinghe, senior statistician at the National Bureau of Statistics (NBS), said in a statement on the bureau’s website.

    “China’s manufacturing sector is still facing de-leveraging pressure,” said Liu Ligang, head of Greater China economics at Australia & New Zealand Banking Group Ltd. in Hong Kong.

    ANZ Bank economists expect the PBOC will cut banks’ RRR by 50 basis points and lower the deposit rate by 25 basis points in the first quarter. China’s biggest banks must currently set aside 20 percent of deposits, while the benchmark deposit rate is 2.75 percent and the lending rate 5.6 percent.

    The non-manufacturing PMI fell to 53.7 in January from the previous month’s 54.1, according to a separate report from the NBS. Services made up 48.2 percent of the economy in 2014, up 1.3 percentage points from a year earlier.

    In the HSBC survey, there was marginal expansion in new orders and new export orders, though both were revised downward from the earlier “flash” estimates.(SD-Agencies)