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Manufacturing expands slower than expected

2010-07-02 10:05

Purchasing managers' index falls to 52.1 in June from 53.9 in May

BEIJING - The purchasing managers' index (PMI), which measures the performance of the manufacturing sector in China, eased in June after growth prospects were dampened by curbs on home prices and bank lending along with external uncertainties.

The official index, compiled by the China Federation of Logistics & Purchasing, fell to 52.1 in June from 53.9 in May. The reading was the lowest since February, the federation said on Thursday.

This is the 16th consecutive month that the index has stood above the threshold of 50, which demarcates expansion from contraction. In May, the indicator dropped from 55.7 in April.

Out of the 11 components of the PMI, only one (finished goods inventories) showed an increase. The output and forward-looking new orders components fell to 55.8 and 52.1, respectively, from 58.2 and 54.8 in May.

The purchases component fell to 53.5 from 56.0 in May, while the input price component tumbled to 51.3 from 58.9.

"Such declines reflected the impact of credit tightening, bad weather (flooding in southern provinces), worries about the bursting of the property price bubble and concerns over the global economic outlook," Nomura Securities said in a research note.

China has since early this year tightened credit after new yuan loans increased exorbitantly in 2009. It also took a slew of stringent measures to check speculation in real estate deals, contributing to the slump in the manufacturing sector.

Global growth prospects have also been dampened by the lingering European debt crisis. The solutions offered by the European countries, meanwhile, has led to new worries that the upcoming austerity measures would contract consumption.

Zhang Liqun, a senior research fellow at the macroeconomic research department of the State Council Development Research Center, said the change in the index pointed to a "steady slowdown" in the broader economy.

"China's economic growth is at a critical stage of leveling off after the climb," Zhang said in a statement.

He said the drop in the input price sub-index of the PMI, to 51.3 in June from 58.9 in May, reflected the reduced cost pressures for manufacturers.

Meanwhile, the HSBC China Manufacturing Purchasing Managers Index fell for the third month in a row to 50.4 in June from 52.7 in May, HSBC Holdings Plc said Thursday.

"The moderation in the manufacturing PMI implies slower sequential growth in China's manufacturing sector, partly due to the tightening measures taking effect. But fears about a hard landing are overplayed. We expect China to achieve around 9 percent growth in the second half, underpinned by massive ongoing investment and robust private consumption," HSBC Chief Economist for China Qu Hongbin said in a statement.

Reuters contributed to the story


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