Manufacturing PMIs conflict but economists see robust growth
Manufacturing growth on the mainland fell again last month because of inflation and concerns about government tightening measures, according to the latest official Purchasing Managers' Index.
The PMI, complied by the China Federation of Logistics and Purchasing on behalf of the National Bureau of Statistics, recorded a modest fall to 52.9 in January from 53.9 in December, which was a further drop from 55.2 in November.
January's figures were well below economists' consensus of 53.5.
However, a competing survey, the HSBC/Markit PMI, indicated an increase to 54.5 in January from 54.4 in December, suggesting solid improvement in the manufacturing sector. HSBC surveyed more than 430 manufacturing companies; the official mainland report surveyed more than 800 manufacturing companies.
A figure higher than 50 indicates growth, while a value below 50 is a sign of contraction.
Economists agreed that growth momentum on the mainland was still robust and anticipated quantitative tightening measures from the government amid strong inflationary pressure.
Seven of the official index's 11 sub-indices were lower than the previous month; that for new export orders dropped sharply from 53.5 to 50.7, an 11-month low, while the index for new orders fell from 55.4 to 54.9.
Four index components rose, including those for input purchases and for exports.
'The index reading was the lowest in five months, indicating the relatively weak growth momentum of China's manufacturing sector,' the report said. 'We believe this was largely attributable to the tighter credit conditions in China and the slower foreign demand.'
Of the 11 sub-indices of the HSBC/Markit PMI, four showed a seasonally adjusted increase in January from December, particularly those for new orders and new export orders. Seven other sub-indices showed a slight decline, including those for input prices, quantity of purchases and output prices.
Qu Hongbin, chief China economist and co-head of Asian economic research at HSBC, attributed the difference between the HSBC/Markit PMI and the official PMI to different ways of weighting the seasonal adjustments of various components.
'China kick-started the new year with another upbeat manufacturing PMI reading, following the stronger-than-expected 4Q GDP growth release,' Qu said.
'The strong growth momentum leaves room for Beijing to fully focus on checking liquidity and inflation pressure. Quantitative tightening in the form of reserve requirement ratio hikes will remain the most effective policy tools.'
Bank of America-Merrill Lynch economist Lu Ting held a similar view, noting that the official PMI was heavily distorted by the Lunar New Year holiday, which had a downward effect on new export orders.
He expected monetary policy to be tightened, but ruled out an excessive squeeze on lending.
Tao Dong, managing director and head of non-Japan Asia economics at Credit Suisse, said the official PMI reading indicated slowing economic growth on the mainland, but still projected steady GDP growth of 9.2 per cent for this year. He expects the People's Bank of China to increase interest rates for borrowers by 1.85 per cent and raise deposit rates and banks' reserve ratios by 2 per cent.
Weaker momentum
The official mainland PMI fell from 53.9 in December to this figure in January: 52.9
