Manufacturing in the mainland has contracted for the first time in more than a year, indicating tighter credit curbs and crackdown on property speculation have worked to cool the economy.
The HSBC purchasing managers' index dipped from 50.4 in June to 49.4 last month, the bank said yesterday, based on a nationwide survey to business executives. It was the first time since March 2009 that the index had dropped below 50, the threshold that indicates expansion or contraction.
The index followed the official PMI by the National Bureau of Statistics on Sunday that fell for the third month from 52.1 in June to 51.2 last month.
Economists said this suggested a gradual moderation in industrial activity but did not point to a double dip in the economy and would not herald a radical policy shift.
'As the reading is fully consistent with an industrial output growth rate of 11 to 13 per cent year on year, panic is not justified,' said HSBC economists Qu Hongbin and Sun Junwei in a research note. 'We still expect the economy to grow by around 9 per cent in the second half of this year and 2011, driven by resilient private consumption and continued investment demand of ongoing infrastructure and new public housing construction projects.'
The mainland's gross domestic product grew 10.3 per cent in the second quarter, slowing from the sizzling 11.9 per cent growth in the first three months, as Beijing tightened credit, curbed property speculation and shut down inefficient power plants, iron smelting and steel production.
Sun Mingchun, an economist with Nomura Securities, said the July PMI might also be distorted by torrential rains and flood disasters and the reading was likely to rise this month.
Tao Dong, an economist with Credit Suisse, said: 'Although the PMI data has added downside risk to the growth outlook, we do not believe that it is bad enough to force a significant policy change in the near future.'