China's Manufacturing at Seven-Month Low

March 1, 2011
Input costs accelerated to a three-month high due to rising raw material and fuel prices.

As overseas orders weakened, manufacturing activity in China fell to a seven-month low in February.

The HSBC China Manufacturing PMI, or purchasing managers' index, fell to 51.7 in February from 54.5 in January, the British banking giant said on March 1.

A government survey also showed factory production fell to a six-month low of 52.2 in February from 52.9 in January, the China Federation of Logistics and Purchasing (CFPL) said.

The figure "confirms that the growth of China's manufacturing sector is cooling a little," said HSBC chief economist Qu Hongbin. "This is a positive development as slower growth is helpful to check inflation, while concerns about a slump in growth are unwarranted."

The data comes after the central bank has hiked interest rate three times in four months and increased the amount of money banks must have in reserve, hoping to keep a lid on soaring prices.

However, input costs accelerated to a three-month high, HSBC said, with purchasing managers blaming rising raw material and fuel prices, which were passed on to customers, fanning inflation in the broader economy. The CFLP said its input price sub-index rose to 70.1% in February from 69.3% the previous month, which curbed production in some industries.

Costs were likely to rise further, it added, due to a drought in China's wheat producing regions and soaring crude prices triggered by unrest in the Middle East and North Africa.

"Inflation pressures in China have been building even before the latest spike in oil prices, and today's data should further reinforce the case for more policy moves from Beijing in the months ahead," said Brian Jackson, at Royal Bank of Canada.

The consumer price index, a key gauge of inflation, hit 4.9% in January, well above the government's targeted ceiling of 4% for this year and up from 4.6% in December.

But the CFLP said the latest data showed "economic growth is still within a stable and moderate range."

Overheating concerns are rising in China after the world's second-largest economy quickly emerged from the global financial crisis with double-digit growth last year, while inflation has remained stubbornly high for months.

Copyright Agence France-Presse, 2011

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