China's manufacturing sector contracted for a third consecutive month in September, suggesting that the world's second-largest economy is not immune to global headwinds although few analysts expect a hard landing.
A pick-up in factory prices, meanwhile, underscored the challenges facing Chinese policymakers as they seek to wrestle stubbornly high inflation under control.
Growing signs of a slowdown in China have prompted concerns that the country that has been the motor of global growth in recent years will not be able to provide as much of a counterweight to the faltering economies of Europe and the United States.
The HSBC purchasing managers' index (PMI), which previews business conditions in a range of industries before official monthly output data, was at 49.9 in September, unchanged from August.
The final reading for HSBC's China PMI is stronger than the flash PMI reading of 49.4 published last week.
"This implies that although the lagged effects of credit tightening will continue to cool industrial activity in the months ahead, there is little need to worry about a sharp slowdown," said Qu Hongbin, China economist at HSBC.
HSBC believes a PMI reading of as low as 48 in China still points to annual growth of 12-13 percent in industrial output and a 9 percent expansion in gross domestic product.
Qu expects China's economic growth to hold up at around 8.5-9 percent in the coming years, despite the global slowdown.
In PMI releases around the world, the 50-point level typically demarcates expansion from contraction in factory activity.
The new export orders sub-index remained below 50 for a fifth straight month, while the sub-index for overall new orders hovered below 50 for a second successive month.
China, which has become a factory to the world, is especially vulnerable to fading demand from the United States and Europe, still its two biggest export markets despite its effort to diversify.
"The trade sector no doubt faces increasing risks, but recent export growth momentum is holding up decently. China is not facing a collapse in global demand yet, as witnessed in 2009," said Connie Tse, an economist at Forecast in Singapore.
China's annual economic growth tumbled to 6.6 percent in the first quarter of 2009 as exports took a hit in the global crisis.
Earlier this month the IMF warned that, without action, the debt-mired economies of Europe and the United States could lapse into recession, prompting it to cut its 2011 and 2012 global growth forecast to 4 percent.
China's exports in August pulled back from a record high and the pace of expansion slowed from the 37.7 percent rate recorded in January, government data showed.
But the slowdown has been modest and gradual so far, due to resilient domestic demand.
Analysts believe China's annual economic growth in the third quarter will slow to around 9 percent, from 9.5 percent in the second quarter, hurt by credit curbs at home and weak demand abroad.
China's official PMI, which is due to be published on Saturday, may have edged up in September, after a rise in the previous month from a 28-month low in July, driven by seasonal factors and solid domestic demand, a Reuters poll showed.
The official PMI, which is weighted more towards big state firms, generally paints a rosier picture of Chinese factories than that of HSBC, which includes small private firms that have been hit harder by credit curbs and weaker demand.
To the discomfort of Chinese policymakers, Friday's data showed input costs rising rapidly, which could imply upward pressure on consumer inflation.
Factory inflation in China quickened markedly in September, with the sub-index for input prices climbing to a four-month high of 59.5 in September from 55.9 in August.
"The upstream price rises could trickle down to consumer prices at some point, but the impact won't be big as global commodity prices have been falling," said He Yifeng, economist at Hongyuan Securities in Beijing.
China's annual inflation pulled back to 6.2 percent in August from a three-year high of 6.5 percent in July, and is widely expected to cool steadily for the rest of 2011.
Chinese leaders, including Premier Wen Jiabao, have repeatedly emphasized that fighting inflation remains the top priority despite the global malaise.
The central bank is holding off further policy tightening amid jitters about a global downturn. But at the same time, it is unlikely to ease policy soon for fear of reigniting price pressures and an investment frenzy by local governments.
Since last October, the central bank has raised interest rates five times and banks' reserve requirement ratios (RRR) nine times.
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