China’s factory sector contracts for the first time in six months

Asian stocks dipped in Thursday trading, after an unexpected contraction in China’s factory activity in January.

HSBC’s flash manufacturing purchasing managers’ index came in overnight at 49.6 from 50.5 in November and below expectations of 50.6. The number hails the first contraction in six months, as new orders declined and exports stayed soft.

On Monday, GDP numbers showed that the world’s second-largest economy expanded at its slowest rate for 14 years, growing 7.7 per cent in 2013.

It’s not the most auspicious start to the year - the PMI number confirms that the slowdown seen at the end of 2013 has carried on into the new year.

Investors are already concerned about the mild slowdown in the country's economy, and Chinese authorities are acting to rein in its high levels of debt.

The PMI reading is indicative of monetary policy tightening and the withdrawal of stimulus measures.

The Conference Board leading economic index, another measure of economic activity, came in at 0.4 from 1.4 for December on Thursday - signalling its lowest growth in nine months.

Andrew Polk, resident economist at The Conference Board China Centre in Beijing commented that the decline demonstrates how credit-reliant growth has become.

Speaking to Bloomberg, Manpreet Gill, a senior investment strategist at Standard Chartered Bank, Singapore, said:

Growth in China isn’t going to pick up as the government is focused on rebalancing the economy and reducing reliance on credit.

While Chinese equities look inexpensive, they lack catalysts. Ongoing reforms in China will be a key challenge for markets this year.

Japan's Nikkei 225 is 0.8 per cent lower, at 15,695.89. The Hang Seng is down 1.5 per cent lower, at 22,737.25, and Korea's Kospi 1.2 per cent lower at 1,947.59.