China factory activity shrinks more than expected

China's mammoth manufacturing sector plagued by chronic overcapacity and plunging demand.

China's manufacturing sector activity shrank more than expected in January, an official survey showed, indicating fears of a slowdown have legs.

The official Purchasing Managers' Index (PMI) missed market expectations and was weaker than in the previous month.

The PMI stood at 49.4 in January, compared with the previous month's reading of 49.7.

Any reading of the index above the 50-point mark shows growth while a number below indicates contraction.

The mammoth manufacturing sector in China has been plagued by chronic overcapacity and plunging domestic and foreign demand.

China, for long the growth engine of the world, slowed down in recent years, with GDP cooling to 6.9 percent in 2015, which was the slowest pace in 25 years.

Chinese shares dropped on Monday following the PMI numbers.

The Shanghai Composite Index eased 1.6 percent, while the CSI300 index of the largest listed companies in Shanghai and Shenzhen lost 1.4 percent.

"The manufacturing sector will likely face a tough year ahead on the back of overcapacity, weakening global demand, and government's plans to tackle pollution," ANZ's chief China economist Li-Gang Liu told Reuters.

Elsewhere in Asia, the manufacturing PMI in Japan held ground, diminishing only by a whisker to 52.3 while India recorded an unexpected return to growth with PMI rising 51.1 in January from 49.1 in December.

The European and the US data are due later in the day.