China's manufacturing activity contracted to a five-month low in January, indicating that the Chinese government measures to control prices caused a decline in manufacturing.

China’s manufacturing sector purchasing managers index (PMI) fell to 52.9 percent in January, compared with 53.9 percent in December, the China Federation of Logistics and Purchasing (CFLP) said on Tuesday.

Analysts polled by Reuters had forecast manufacturing PMI to decrease slightly to 53.5 in January.

Analysts said that Chinese government measures to contain the rising prices led to a decline in manufacturing activity in January.

However, the index showing the input prices rose to 69.3 in January compared with 66.7 a month earlier, prompting further tightening measures from the government to check inflation.

New loans by state-owned banks in China totaled 1.2 trillion yuan ($182.3 billion) by January 24, more than double the amount lent in December 2010, the China Business News reported.

To contain the credit growth, the Chinese government allowed the banks to lend between 7.2 trillion yuan and 7.5 trillion this year.

The Chinese Academy of Sciences forecast the world’s second largest economy will grow at 9.8 percent in 2011, with inflation likely to reach 3.7 percent.

Tight credit controls and high growth in 2010 will slow GDP growth this year, and domestic demand will substitute the investment as the growth engine of the Chinese economy, the government think tank said.