China's Manufacturing at 11-month Low

Demand is cooling due to effect of tightening measures and the slackness in external markets

As Beijing's efforts to cool the red-hot economy continued, growth in China's manufacturing activity fell to an 11-month low, HSBC data released on June 23 showed.

HSBC's preliminary purchasing managers index fell to 50.1 in June from a final reading of 51.6 in May, the British banking giant said, showing the sector barely grew as authorities tightened restrictions on bank lending.

"Demand is cooling thanks to the effect of tightening measures and the slackness in external markets," said HSBC chief economist Qu Hongbin. "But hard-landing worries are unwarranted not least because the current PMI is at a level consistent with around 13% growth in industrial production."

HSBC predicted inflation will ease on falling raw material prices -- good news for Beijing as it battles to contain soaring consumer costs.

Authorities are increasingly anxious about inflation, which hit a near three-year high of 5.5% in May, and have been trying to stem a flood of credit into the economy by restricting lending and hiking interest rates.

Despite growing signs the economy is slowing, analysts expect inflation to accelerate this month and authorities are tipped to raise rates for the fifth time since October in the coming weeks.

The state-run China Securities Journal called on authorities to raise rates as soon as possible, saying the country's negative real interest rate has resulted in money flowing out of the banking system. This has made the central bank's efforts to restrict lending by raising the bank reserve requirement ratio less effective, it said.

Copyright Agence France-Presse, 2011

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