China's worries continue to deteriorate as the two PMI indices remained below 50 in January for six consecutive months. The official PMI dropped to 49.4, however, the Caixin/Markit PMI data was better than expected as it increased to 48.4 from 48.2.

The sluggish growth in the manufacturing sector weighs on economic growth, as restrictions come from both the supply and demand. Overcapacity and inventory pileup from heavy segments weigh on the supply, resulting in lower producer prices and decline in corporate profits. Manufacturing in China has been mainly driven by strong demand in construction sector as housing market has developed and demand is expected to be less volatile.

"After a volatile month in the stock and currency markets, there is some temporary calmness. This is particularly true for the currency market. The onshore CNY has remained flat at 6.58 and the CNY-CNH gap has been manageable. However, we see the dampened volatility as a consequence of heavy government intervention, which are not sustainable in the longer term." - Says Nordea Markets. "We see financial market instability as the largest risk from China this year."