Latest PMI readings point to slowdown
The mainland's purchasing managers' index (PMI) signals the world's second-biggest economy is slowing down moderately as Beijing tries to rein in inflation.
The PMI was at 50.7 for July compared with 50.9 in June - dropping for the fourth straight month - according to the China Federation of Logistics and Purchasing. A reading above 50 indicates expansion in factory output, while a reading below 50 points to contraction.
Separately, the PMI compiled by HSBC and Markit Economics that was released yesterday found a reading of 49.3 for July, from 50.1 in June, the first time it has slid below 50 in a year.
Zuo Xiaolei, chief economist at China Galaxy Securities, said the HSBC gauge showed a lower reading because it focuses on small and medium-sized companies, which have been facing difficulties in securing bank credit.
'Seventy per cent of the enterprises in the HSBC survey are small and medium-sized,' Zuo said.
Yao Wei, China economist at Societe Generale, said the PMI figures show the limitation of Beijing's macroeconomic policies.
'Smaller manufacturers are much more vulnerable to the central government's monetary policies such as raising of bank deposit reserve ratios. July is traditionally a weak month for the manufacturing industry for several reasons, including tight power supply,' Yao said: 'If we take out the seasonal factors, we can say manufacturing in July in fact rebounded from June.'
The HSBC data is based on a survey of more than 400 companies. The index produced by the logistics federation is based on a survey of purchasing managers in more than 820 companies in 20 industries. That official data last dropped below 50 in February 2009.
Both figures shows China's manufacturing sector is slowing following Beijing's moves to raise interest rates, tighten bank lending and setting limits on property ownerships to curb inflation.
Interest rates have been raised five times since October, yet the consumer price index saw a jump of 6.4 per cent in June - a three-year high - far exceeding the government's target of 4 per cent this year.
The central bank yesterday said the fundamentals of economic growth are 'still good' and reining in prices would remain its 'top priority'. Inflation expectations 'remain strong and the foundation for stabilising prices is not solid', the People's Bank of China said on its website after an internal meeting.
Zuo said Beijing had revised its inflation target from 4 to 5 per cent for this year. 'The current inflation level is normal considering that the residents' income is also rising,' she said, adding that the economic growth should be about 9.5 per cent this year and the PMI would remain above 50.
Yao said prices were likely to keep rising for the rest of the year, though more slowly.
'People will find things more expensive but due to a high base, the rate of increase will not be as high as the first half.'
