THE official factory gauge signaled a record sixth straight month of deterioration, raising the stakes for policymakers struggling to prop up the economy amid a second bear market in stocks since June and a currency at a five-year low.

    The purchasing managers index (PMI) dropped to a three-year low of 49.4 in January, the National Bureau of Statistics (NBS) said yesterday. That compared with a median estimate of 49.6 in a Bloomberg survey of economists. Numbers below 50 indicate contraction. The official services index also fell, while a private PMI survey signaled the industry shrank an 11th month.

    The reports could worsen the dilemma for policymakers: add monetary stimulus to help stem the slowdown in growth, or avoid more easing that could exacerbate record capital outflows and put more pressure on the yuan.

    “What has happened on the capital account, and how the authorities seem to want to respond to this in terms of policies, make it harder for them to respond to the weak economy by mainstream, forceful monetary measures,” said Louis Kuijs, head of Asia economics at Oxford Economics in Hong Kong. He said he expects more “quasi-fiscal policies” such as expedited spending on infrastructure to be announced in coming months.

    The People’s Bank of China cut the main interest rate six times from late 2014 to late 2015 to a record-low 4.35 percent. It also has made a series of reductions to the reserve- requirement ratio for big banks, allowing them to keep less cash locked up at the central bank. Meanwhile the Federal Reserve in December raised rates for the first time in nine years.

    China’s capital outflows jumped in December, with the estimated 2015 total reaching US$1 trillion according to a Bloomberg gauge, amid a 6.9 percent economic expansion last year that was the slowest in a quarter century.

    The gauge’s six months below 50 is the longest stretch of readings below that level in NBS data since the start of 2005. The PMI slumped last month because of weak demand and efforts to reduce overcapacity, NBS said in a statement yesterday. Indicators for new export orders and imports also decreased from a month earlier.

    The non-manufacturing PMI for services edged down to 53.5 last month from a 16-month high of 54.4 in December.

    The private manufacturing survey released yesterday showed some improvement, though it’s been below 50 since February. The Caixin China Manufacturing PMI rose to 48.4 last month from 48.2 in December. New orders rose from the prior month, climbing to the highest level since June.

    “The economy is still in the process of bottoming out and efforts to trim excess capacity are just starting to show results,” He Fan, chief economist at Caixin Insight Group, wrote in a statement released with the data. “The pressure on economic growth remains intense in light of continued global volatility. The government needs to watch economic trends closely and proactively make fine adjustments to prevent a hard landing.”(SD-Agencies)