China's economy started the year on a weaker note, as an initial gauge of manufacturing activity in January slipped to its lowest level in six months.
The preliminary HSBC Purchasing Managers' Index for January showed a contraction compared with December's reading, suggesting that a loss of economic momentum in the final quarter of last year could carry through into the new year.
The initial manufacturing PMI slipped to 49.6 from December's 50.5, according to the measure released Thursday by lender HSBC Holdings PLC and financial data provider Markit. A reading below 50 designates contraction compared with the previous month, while a reading above that shows growth.
"The data show China's economic growth momentum has slowed significantly," said SociΓ©tΓ© GΓ©nΓ©rale economist Yao Wei. "There may be some seasonal factors but the trend is clear."
Economic growth slipped slightly in the fourth quarter from a year earlier, coming in at 7.7% against 7.8% in the third quarter.
Nomura economist Wendy Chen said she expects growth to continue to trend lower.
The measure "is generally in line with our expectations that we will see slower growth in the first quarter," she said. Nomura expects economic growth to slow to 7.5% in the first quarter of this year and 7.1% in the second.
Other data have also been pointing to less-robust manufacturing conditions. In the final month of last year, the industrial sector showed growth was trending lower, as output slipped to 9.7% from 10% in November.
Policy makers have taken a relaxed view of the lower growth, however, insisting that they want to focus on rebalancing the economy—shifting it away from a reliance on exports and investment for growth and strengthening the role of consumption.
But they also say they need to ensure an adequate number of new jobs—Beijing late last year reiterated a target of creating 10 million—and keep urban unemployment within 4%.
That means they still have room to keep the longer-term objectives in their sights if the economy expands at a moderate pace.
Premier Li Keqiang has said that China could manage with growth of 7.2% and still keep unemployment within manageable levels and not create new sources of social unrest.
The HSBC data showed weakness in most of the areas measured by its survey, with decreases in the subindexes for new orders, new export orders and employment. Output increased but at a slower rate than in the previous month.
Some economists said it was time for the government to move ahead with additional investment projects and loosen its monetary stance.
"We need to see the government's so-called 'proactive fiscal policy' become really proactive," said Shen Jianguang, economist at Mizuho Securities.
Mr. Shen said that higher interest rates on the interbank market—the result of a cash squeeze in the banking system in recent months—have begun to have an impact on corporate borrowing costs, particularly for smaller private companies. The interbank market is where banks lend to each other to meet their daily liquidity needs.
"Interest rates have been moving higher and smaller enterprises are feeling the effects," he said.
The HSBC survey covers many smaller companies. An official measure of manufacturing activity, due out on Feb. 1, includes more large state enterprises.
The HSBC preliminary PMI figure, also called the flash PMI, is based on 85% to 90% of total responses to HSBC's PMI survey each month, and is issued about one week before the final PMI reading.
—Liyan Qi and Yajun Zhang contributed to this article.
Write to Liyan Qi at liyan.qi@dowjones.com
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