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July 2, 2011

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Industry at its weakest since 2009

THE vitality of Chinese manufacturing activity in June dropped to its weakest level in 28 months as China continued to tame rising inflation and prevent asset price bubbles.

The drop was an indication of an upcoming economic slowdown, but because of still expanding industrial production and resilient domestic demand, the slowdown wouldn't be marked, analysts said.

The official Purchasing Managers' Index, a comprehensive gauge of manufacturing sector operating conditions across the country, settled at 50.9 percent in June, the China Federation of Logistics and Purchasing said yesterday.

It was close to the reading of 50 that separates expansion from contraction, and compared with 52 percent in May. The June figure was the lowest since February 2009.

Among component indices, only stockpiles reported an increase. Others, including production, new orders, export orders and purchase all declined from a month earlier.

There was some good news. Purchasing prices at the factory gate showed a significant retreat. The input prices under the PMI fell 3.6 percentage points, the biggest cut among all indices, the federation said.

The manufacturing index is based on a survey of purchasing managers in more than 820 companies of 20 industries.

"Continued moderation of PMI is a harbinger of economic slowdown," said Zhang Liqun, an analyst at the federation. "But as stockpile adjustment turns out to be a major trigger of weakening PMI, we expect this round of slowdown won't become an economic hard landing as some economists predicted."

Australia and New Zealand Banking Group economists echoed that view.

"While the June PMI moderated more than expected, it remained above the neutral level of 50, indicating that China's manufacturing sector continues to expand, albeit at a more moderated pace," said the bank.

Meanwhile, the HSBC China Manufacturing PMI fell to an 11-month low of 50.1 in June, from 51.6 in May.

"The HSBC PMI declined more sharply than the official PMI mostly due to the former having a larger weighting of SMEs which are more susceptible to tight credit conditions and the rising cost of labor, raw materials and other factors," ANZ said.

China's gross domestic product grew 9.7 percent from a year earlier in the first quarter, slower than last year's 10.3 percent.

The State Information Center forecast that first-half growth would remain at around 9.5 percent, and continue to moderate to 9.3 percent for the whole year.




 

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