China's Manufacturing at 10-month Low

Manufacturers continued to reduce inventories amidst slowing new business.

Fuelling fears of a slowdown in the world's number two economy, manufacturing in China eased to a 10-month low in May. The HSBC China Purchasing Managers Index (PMI) slipped to 51.1 last month -- the lowest since July 2010 -- from a final reading of 51.8 in April, the bank said.

Although the figures suggest production is still growing, they follow a number of measures by Beijing aimed at taming the economy and reining in soaring inflation, including several interest rate hikes.

"Manufacturers continued to reduce inventories amidst slowing new business flows, leading to slower production growth at a 10-month low," said Qu Hongbin, HSBC's chief China economist.

The output subindex also declined to a 10-month low in May at 50.9 from 51.8 in April, according to the statement.

The Shanghai Composite Index plunged 2.93% and Hong Kong's Hang Seng Index fell 2.11% on May 23 on concerns that the data indicated increasing risks of a slowdown in the economy.

But Qu downplayed the slowdown fears, adding that the PMI level was still consistent with economic growth of about 9%.

"There is no need to worry about a hard landing," Qu said, adding that he expected Beijing to pursue economic tightening measures in the coming months as taming inflation remained a key focus of government policymakers.

China's consumer price index, which is a key gauge of inflation, rose 5.3% on year in April -- a slight easing from a 32-month high of 5.4% in March but well above Beijing's 4% target for 2011.

The government, ever wary of surging inflation's potential to trigger social unrest, has taken a series of measures to rein in soaring prices, including raising interest rates four times since October.

The central bank has also five times this year increased the reserve requirement ratio, which effectively limits the amount of money banks can loan out, after hiking the rate six times last year.

Copyright Agence France-Presse, 2011

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