Economy

China's manufacturing sees sizable slowdown

By Chen Jia (China Daily)
Updated: 2011-06-24 09:40

A worker inspects mining equipment in Anhui province. HSBC's Purchasing Managers' Index dropped to an 11-month low of 50.1 in June, compared with the final official reading of 52 in May, indicating a sizable slowdown in the country's manufacturing growth. [Photo / China Daily]

Concerns about hard landing aren't warranted, according to economists

BEIJING - China's manufacturing activities stagnated in June in response to the 10 months of consecutive tightening measures, HSBC Holdings PLC said on Thursday.

It is too early to say whether the world's second-largest economy will suffer a hard landing, analysts said.

HSBC's Purchasing Managers' Index (PMI) dropped to an 11-month low of 50.1 in June, compared with the final official reading of 52 in May, indicating a sizable slowdown in the country's manufacturing growth, according to the HSBC report.

The HSBC's PMI is published monthly by HSBC, approximately one week before the China Federation of Logistics and Purchasing (CFLP) releases the final PMI. A reading above 50 means an expansion in the manufacturing sector, while a reading below 50 indicates contraction.

Related readings:  China's non-manufacturing sector growth slows in May  Hard landing for economy 'avoidable'  Manufacturing slows amid credit squeeze  PMI reveals 'appropriate adjustment' in growth

A sub-index of manufacturing output released by HSBC decreased from 51.6 in May to 50 in June.

Qu Hongbin, HSBC chief economist of China and co-head of Asian Economic Research, said that the government's tightening measures and the decreasing demand from external markets led to a decline in the Chinese manufacturing sector.

"The ongoing inventory de-stocking also slowed the output growth," said Qu.

China's consumer price index (CPI), a key indicator of inflation, jumped to 5.5 percent year-on-year in May, a new peak in almost three years, and the central bank raised the required reserve ratio for commercial banks, the sixth time this year, on June 20.

Under the tight policies, the country's economic growth showed a continuous slowdown since April. The official PMI was 52.9 in April and 53.4 in March.

This continued drop in the HSBC PMI indicates that the government's measures to tame high inflation have taken effect, said Wang Jun, an economist at the China Center for International Economic Exchanges, a government think tank.

Wang said the tightening monetary policies may not ease in the short term because the nation's inflation is likely to climb higher in the future. He predicted the CPI figure to exceed 6 percent year-on-year in June.

Although the HSBC PMI declined, it still showed an expansion in the manufacturing sector but at a slower rate, according to Wang.

"I don't worry about a hard landing. The second quarter GDP is likely to stay above 9 percent," he said.

"Hard-landing worries are unwarranted," said the HSBC economist Qu. "The good news is that inflationary pressures started to ease in June amid slowing demand."

Ding Shuang, an economist with Citibank, said in a research note that slower growth is necessary to keep inflation under control, given China's current economic structure and investment-driven growth model.