The CLSA China Purchasing Managers Index (PMI) which measures manufacturing activity nationwide, stood at 41.2 in December and although it was up from November's 40.9, overall output still contracted, CLSA Asia-Pacific Markets said.

A reading above 50.0 means the manufacturing economy is expanding, while a reading below 50 indicates an overall decline.

The December figure represents the fifth contraction in a row, CLSA said.

The direction of China's manufacturing sector reflects the overall direction of the world's fourth-largest economy.

The PMI figures indicate a large manufacturing slowdown in the fourth quarter.

"Chinese manufacturing activity was very weak in December. Output contracted at a record pace, employment fell for the fifth month and work in hand declined," said Eric Fishwick, head of CLSA Economic Research.

"With five back-to-back PMIs signalling contraction, the manufacturing sector, which accounts for 43 percent of the Chinese economy, is close to technical recession," he said.

The World Bank has predicted that economic growth in China next year will slow to a 19-year low of 7.5 percent.

The PMI is based on data compiled from a monthly survey of purchasing executives in more than 400 manufacturing companies in various industries across the country.

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