A Chinese manufacturing index unexpectedly fell to a three-month low as output gains eased and employment weakened, suggesting the world’s second-largest economy is vulnerable to a slowdown.

The preliminary reading of 50.5 for a Purchasing Managers’ Index released Monday by HSBC Holdings Plc and Markit Economics compares with a final figure of 50.8 in November and the 50.9 median estimate in a Bloomberg News survey of 11 analysts. A number above 50 indicates expansion.

Monday’s report may signal that the Communist Party will face pressure in the coming months to support growth in the short term as President Xi Jinping rolls out reforms to sustain expansion for the rest of the decade. The government warned last week that the economy faces “downward pressure” amid overcapacity and local-government debt risks.

“The reading confirms our view that Chinese GDP growth is already decelerating,” said Dariusz Kowalczyk, senior economist and strategist at Credit Agricole CIB in Hong Kong. He forecasts 7.2 percent expansion in 2014, compared with 7.7 percent this year.

Stocks extended losses after the report. China’s benchmark Shanghai Composite Index was down 0.7 percent at 11:08 a.m. local time.

Separately Monday, large Japanese businesses pared their projections for capital spending in the fiscal year ending March 2014, according to a quarterly Bank of Japan report. Markit will also release PMI gauges for the euro area, France, Germany and the U.S.

Monday’s China report, known as the Flash PMI, is based on 85 percent to 90 percent of responses to surveys sent to more than 420 manufacturers. The final reading will be released on Jan. 2.

The National Bureau of Statistics and China Federation of Logistics and Purchasing usually release their own survey of purchasing managers on the first day of the month. The gauge’s November reading was 51.4, the same as October, which was an 18-month high. (Bloomberg)

Qu Hongbin, HSBC’s chief China economist in Hong Kong, said in a statement Monday that the December figure is still higher than the average reading in the third quarter, “implying that the recovering trend of the manufacturing sector starting from July still holds up.”

Top party and government officials held the annual Central Economic Work Conference last week to map out policies for next year. A report issued after the meeting said policy makers will try to stabilize expansion, restructure the economy and promote reforms.



Leaders also pledged to maintain continuity and stability in macroeconomic policies in 2014 and stick to a prudent monetary policy and proactive fiscal policy. They also vowed to tackle local government debt.

Separately, the State Council said it will expand the over-the-counter stock market to ease financing difficulties for small and medium-sized enterprises and expand channels for private investment. Such businesses may find it difficult to get loans from banks who prefer to issue credit to state-owned companies.

Higher costs and wages in China are prompting some companies to set up manufacturing in neighboring Asian economies. Samsung Electronics Co., the world’s biggest smartphone maker, is building a $2 billion plant in Vietnam that may make 120 million handsets a year by 2015, according to two people familiar with the company’s plans who asked not to be identified because the matter is private. (Bloomberg)