The flash Markit/HSBC Purchasing Managers’ Index (PMI) fell to 49.6 in January from December’s final reading of 50.5, the first time the measure dropped below 50 since July 2013 when the initial reading came in at 47.7.
The January reading is below market expectation of 50.3. A number below 50 signals contraction.
"There has been market debate on whether the rising interest rates since June 2013 would significantly affect the real economy. The weak PMI reading suggests that this negative effect may have finally started to kick in," says Zhiwei Zhang, an economist at Nomura.
"We believe the government will not loosen monetary policy at this stage. It will likely wait for more signals from the official PMI and headline activity indicators such as industrial production and electricity over the next few months," Zhang adds.