Mainland manufacturing sector continues to cool

PUBLISHED : Tuesday, 24 May, 2011, 12:00am
UPDATED : Tuesday, 24 May, 2011, 12:00am


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The slowdown in mainland manufacturing gained momentum in May, easing inflationary pressure.

The monthly indicator, The Flash China Manufacturing Purchasing Managers' Index, compiled by HSBC/Markit and released a week before the announcement of the official PMI data, fell to a 10-month low of 51.1 from 51.8 in April.

The index's long-term average stands at 52.3.

A reading above 50 indicates expansion, while one below that threshold points to contraction.

'Cooling growth is not all bad news,' HSBC chief economist Qu Hongbin said yesterday. 'Policy focus is still tilted towards taming inflation in coming months.'

All but the employment sub-index of the PMI showed smaller growth. This indicated that manufacturers were reducing their inventories of finished goods as Beijing sought to slow the economy and factories suffered disruptions in the supply of components following the earthquake in Japan in March.

Some Hong Kong manufacturers have complained that power shortages in the Pearl River Delta could disrupt production and increase production costs. They say that in the Baoan district of Shenzhen there are compulsory blackouts as often as three days a week.

The growth in input and output prices slowed to their long-term average after hitting a record in the fourth quarter last year, signalling that commodity price inflation had began to lessen.

The input price sub-index hit its lowest level in nine months at 60.1 in May from 63.1 in April, while output prices registered a smaller slowdown, at 54.6 in May from 55.2 in April.

Qu said the data suggested demand was strong enough for manufacturers to pass on some burden of higher input prices to merchandisers.

He dismissed market worries of an 'economic hard landing', saying the economy was still growing at 9.7 per cent in the first quarter.

Qu said he expected more increases in interest rates and the ratio of funds banks must set aside when lending.

The central bank, the People's Bank of China, raised the reserve requirement ratio for the fifth time this year on May 18 by 50 basis points to a record of 21 per cent for larger banks and 19 per cent for smaller banks.

Mizuho Securities Asia chief economist Shen Jianguang said there was room for two more rounds of rises in the reserve ratio and for interest rates.

He added that consumer price inflation could hit 5.5 per cent this month compared with 5.3 per cent in April, citing a sharp rise in weekly food price data compiled by the ministries of commerce and agriculture. Grain and pork prices rose the sharpest earlier this month.

The Flash index is based on about 90 per cent of the monthly PMI survey responses of about 400 manufacturers around the mainland.


The value, in US dollars, of mainland manufacturing in 2009 from the latest UN figures, making it the world No 2 behind the US