China's Manufacturing Stalled in June

July 1, 2011
Likely to fuel concerns that China is heading for a hard landing as Beijing -- anxious about inflation's potential to spark social unrest -- steps up efforts to rein in soaring costs

Growth in China's manufacturing activity almost stalled in June, two separate surveys showed on July 1, as Beijing clamps down on bank lending as part of efforts to tame stubbornly high inflation.

The HSBC China Manufacturing PMI, or purchasing managers' index, fell to an 11-month low of 50.1 in June from 51.6 in May. The official purchasing managers' index fell to a 28-month low of 50.9 in June from 52.0 in May -- marking the third straight monthly decline -- the China Federation of Logistics and Purchasing said.

"This implies that policy tightening is working, pointing to a peak of inflation in the coming months," HSBC chief economist Qu Hongbin said.

The figures are likely to fuel concerns that the world's second-largest economy is heading for a hard landing as Beijing -- anxious about inflation's potential to spark social unrest -- steps up efforts to rein in soaring costs.

"The continued easing in June PMI figures, mainly due to inventory adjustments, suggests economic growth is likely to continue to slow," said Zhang Liqun, a government analyst. But Zhang added that "demand growth is generally stable and so economic growth will not suffer a deep slowdown."

Both surveys showed inflationary pressures -- a major bugbear for policymakers -- eased last month. The official input prices sub-index, which measures the cost of raw materials, fell to 56.7 in June from 60.3 in May.

Sluggish manufacturing activity "will further depress markets, which have been increasingly worried about a hard landing in China in the past two months," said Lu Ting, China economist at Bank of America-Merrill Lynch.

"Some policymakers -- and their advisors -- might also be more concerned about over-tightening and might consider slightly adjusting their policy stances."

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 signs the economy is slowing, analysts expect inflation accelerated in June and authorities are tipped to raise rates for the fifth time since October in the coming weeks.

Copyright Agence France-Presse, 2011

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