Growth rates in output and new business are weakening.

Growth rates in output and new business are weakening. Photo: AP

Business conditions for China's manufacturers worsened in January as output and new order growth weakened, a private survey showed on Thursday, pointing to a weak start for the economy in 2014.

The final reading of manufacturing activity sparked a further decline in the Australian dollar, which was already trading lower on the back of further tapering by the US Federal Reserve and emerging market concerns.

The local currency, which was trading at US87.33¢ just before the data was released, fell to US87.11¢.

The soft data was also expected to weigh on regional sharemarkets, which have spent the day in the red following declines in US and European stocks.

The Markit/HSBC final manufacturing PMI for January dipped to 49.5 from December's 50.5, the first deterioration in six months. The figure was in line with the 49.6 reported in the preliminary version of the PMI released a week earlier.

A reading below 50 indicates a contraction while one above shows expansion.

The survey, an early indication of sentiment in the 56.9 trillion yuan ($9.4 trillion) economy, found growth rates in output and new business weakening, while companies cut jobs at the fastest rate since March 2009.

"A soft start to China's manufacturing sectors in 2014, partly due to weaker new export orders and slower domestic business activities during January," said Hongbin Qu, chief economist for China at HSBC, in a statement.

"Policymakers should pay attention to downside risks and pre-emptively fine-tune policy to steady the pace of growth if needed."

Last week's flash PMI reading, which coincided with renewed signs of tightening in China's financial markets, had contributed to a fall in global markets as investors fretted over the impact worldwide of a China slowdown.

However, many economists and experts say that Beijing will act if the economy loses traction too quickly even as it pushes towards more balanced and sustained economic growth.

China's leaders have pledged to push reforms to unleash new growth drivers as the world's second-largest economy loses steam, burdened by industrial overcapacity, piles of debt and soaring house prices.

That means reducing government intervention to allow market forces to have a bigger say in allocating resources, and promoting domestic consumption at the expense of investment and exports.

China's annual economic growth slowed to 7.7 percent in the fourth quarter of 2013 from 7.8 percent in the previous quarter, putting full-year growth at 7.7 percent, sightly ahead of the government's target of 7.5 percent.

Reuters