Manufacturing sector ends 3-month decline

PUBLISHED : Thursday, 02 September, 2010, 12:00am
UPDATED : Thursday, 02 September, 2010, 12:00am

The recent slowdown in the country's manufacturing sector reversed course slightly last month, but it was still manufacturing's second-lowest performance in 18 months, and economists generally expect it will remain sluggish owing to efforts to cool the property market.

The Purchasing Managers' Index (PMI) compiled by the China Federation of Logistics and Purchasing on behalf of the National Bureau of Statistics, ended a three-month decline and edged up to 51.7 last month from 51.2 in July.

The improvement, which was to a level slightly better than economists' forecast of 51.5, was driven by higher output and new orders. A reading above 50 indicates expansion, while one below 50 signals contraction.

The findings of a PMI survey compiled by HSBC/Markit also showed a slight improvement in the manufacturing sector, which was sharply off its near-record growth trend at the beginning of this year. The HSBC/Markit PMI rose to 51.9 last month from 49.4 in July, buoyed by stronger new orders from the domestic market.

'China is moderating rather than melting down,' said HSBC chief economist Qu Hongbin. 'Domestic demand will be resilient and uphold around 9 per cent economic growth in the second half and next year, while external demand is more likely to worsen in the coming months.'

The official PMI showed that new orders jumped to 53.1 last month from 50.9 in July, while new export orders edged up to 52.2 from 51.2. This means domestic demand grew faster than that from overseas.

Morgan Stanley chief economist Wang Qing said the manufacturing sector slowed as a result of cooling measures in the property market and efforts by local governments to meet full-year energy conservation targets. 'With no sign that the tightening on the property sector will be loosened soon, industrial production will likely remain weak before policy turns growth-supportive in the fourth quarter of this year,' Wang said.

Mizuho Securities Asia chief economist Shen Jianguang said the two sets of PMI indices signalled economic activity was gradually decelerating and that the country seemed to be on track for an economic 'soft landing'.

The official PMI found that 14 out of 20 industries recorded expansion last month, but industries such as chemical fibres, rubber and plastics and textiles slipped into contraction.

Meanwhile, the government's China Automotive Technology and Research Centre revealed that retail deliveries of cars, SUVs and multipurpose vehicles rose 59.3 per cent last month to 977,300 units from a year earlier after Beijing subsidised fuel-efficient models.

The growth was much faster than the 15.4 per cent increase in July to 822,300 units.

This is despite the fact that the government raised the consumption tax for small cars to 7.5 per cent from 5 per cent.

A Credit Suisse research report estimates that car sales will grow in the next few months when there are more holidays, including National Day.

It says sales will probably be spurred largely by discount offers.

However, Credit Suisse says it expects car manufacturers and dealers to remain cautious about sales in the rest of this year.