Manufacturing growth cools as anti-inflation measures bite

PUBLISHED : Monday, 02 May, 2011, 12:00am
UPDATED : Monday, 02 May, 2011, 12:00am


Beijing's economic tightening measures have hurt growth in manufacturing activities, an official purchasing managers' index showed yesterday.

The PMI, compiled by the China Federation of Logistics and Purchasing on behalf of the National Bureau of Statistics, declined 0.5 point to 52.9 last month from March, dragged down by a tighter credit regime and a moderating property sector.

Growth in output, new orders, input prices and imports tapered off but still expanded. An index reading above 50 indicates expansion and below 50 indicates a contraction.

The official PMI data was consistent with the HSBC/Markit index, which remained at 51.8 last month. The official PMI polled 820 manufacturers in 20 industries around the mainland, while the HSBC/Markit index surveyed 430 producers in coastal regions.

The official PMI's sub-indices indicated that domestic and export demand slowed last month, and new export orders fell. 'Export growth may soften in coming months,' the official PMI report said.

Although input prices dropped 2.1 points to a seven-month index low of 66.2, it had the highest reading among all sub-indices.

Price inflation swept across all sectors such as chemicals, electrical machinery and equipment, non-metal minerals, oil refining and coking, pharmaceuticals and wood processing and furniture. Upward pressure on costs eased slightly.

In March, producer price inflation was 7.3 per cent while consumer price inflation rose at 5.4 per cent.

Premier Wen Jiabao said recently that consumer price inflation was like 'a tiger, which must not be set free' or it would be 'very difficult to put back in a cage'.

Following an increase of 50 basis points in the reserves that banks must set aside when lending, or the so-called required reserve ratio, on April 21, the fourth this year, economists anticipated more increases in the coming months.

China International Capital chief economist Peng Wensheng said continuing strength in food prices kept consumer price inflation at a high of 5.5 per cent last month, or similar to that in March.

'Monetary tightening will continue in the short term,' he said. 'Inflation control will remain the top policy priority in the second half of 2011.'

Peng expects interest rates to be raised again in the second half by 25 basis points after four rounds of rises since October last year.

Slowing down

Policies to tackle soaring prices, like tighter credit, have hit manufacturers

The official purchasing managers' index, while still expansionary, declined 0.5 point last month to: 52.9