Chinese Production Contracted for First Time in Year, India Hit 20-Month Low

Aug. 1, 2011
Manufacturing in other Asian countries saw downturn as well.

Manufacturing activity across Asia continued to slow in July, data showed on August 1, as efforts to tame stubbornly high inflation across the region took hold.

Export-reliant countries were also hurt by weakening demand from crisis-hit Europe and the United States while increases in the value of some Asian currencies made their overseas shipments less competitive.

Chinese production contracted in July for the first time in a year while Indian output hit a 20-month low, HSBC said, as monetary tightening measures put the brakes on two of the region's biggest and fastest-growing economies.

Manufacturing in Taiwan contracted for the second straight month in July to the lowest level since January 2009 while South Korea saw activity pick up, the banking giant said, releasing its monthly purchasing managing indexes.

A separate survey showed a downturn in Australian manufacturing gathered pace in July as Australia -- largely shielded from the global crisis due to strong Chinese demand for its raw materials -- saw its currency hit a 30-year high against the dollar.

China's manufacturing activity fell to 49.3 in July from 50.1 in June, which HSBC chief economist Qu Hongbin said confirmed the "slowing growth momentum of the manufacturing sector against the backdrop of sustained tightening and lacklustre external demand."

Beijing's own purchasing managers' index showed China's production slowed for the fourth straight month in July to 50.7 from 50.9 in the previous month -- the lowest level in more than two years.

Both surveys showed inflationary pressures eased in July, with an official index measuring the cost of raw materials used to make products falling slightly to 56.3 in July from 56.7 in the previous month.

HSBC said "cost inflation remained muted" last month.

Chinese officials have been pulling on a variety of levers to prevent the economy from overheating and rein in inflation -- which hit a three-year high of 6.4% in June -- amid fears high prices could trigger social unrest. In a bid to stop money flooding the system Beijing has increased the amount banks must hold in reserve several times -- which cut lending 10% in the first half of 2011 -- while interest rates have risen five times since October.

China's central bank said "stabilizing prices" remained the top priority for the second half, warning inflation expectations were still strong and could rise if policies were relaxed.

India's PMI fell to 53.6 in July from 55.3 in June due to prolonged monetary tightening while Taiwan declined to 46.1 from 49.9, HSBC said.

South Korea's PMI rose slightly to 51.33 in July from 51.13 in June.

In Australia, the Australian Industry Group-PricewaterhouseCoopers Australian Performance of Manufacturing Index fell to 43.4 points in July, down 9.5 points from June.

Copyright Agence France-Presse, 2011

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