Tags: China Manufacturing Growth Slows as Policy Tightened

China Manufacturing Growth Slows as Policy Tightened

Thursday, 30 Dec 2010 07:41 AM

China's manufacturing boom lost a little momentum in the final month of the year, though it still continued to expand strongly, said a survey released Thursday.

The HSBC China Manufacturing Purchasing Managers Index dipped to a three-month low of 54.4 in December from November's 55.3 on a 100-point scale where numbers above 50 show activity expanding. It is based on responses from some 400 companies.

Production still expanded at a steep pace in December and didn't slow enough to allow factories to cut down on order backlogs, HSBC said. To keep up with the work, companies were forced to hire more staff.

Inflation concerns also persist, with factories reporting that input prices continued to rise, although they too eased to the slowest in three months.

Prices for raw materials, energy and other supplies needed to make their goods rose for the fifth month in a row, survey respondents said. They said prices for basic metals were particularly strong.

As a result, manufacturers continued to pass on their higher costs to customers by charging them more for their goods, HSBC said.

Inflation is a big concern in China. Officials hiked interest rates on Saturday for the second time in little more than two months after inflation jumped to 5.1 percent in November, a 28-month high.

A frenzy of lending over the past two years has helped China rebound quickly from the global crisis. Still, combined with bad weather and rising global commodity prices, the lending has also complicated efforts to cool inflation.

"Inflation rather than growth still remains as the top policy concern, despite the moderation in December's manufacturing PMI reading," said Hongbin Qu, HSBC's chief economist for China.

Qu said he expects authorities in Beijing to take further tightening measures, including additional modest interest rate hikes.

Domestic demand appears to be strengthening, the report said, with data suggesting new orders came mainly from the domestic market while new export business rose at a much slower rate than total new orders.

Economists see the PMI as a better measure of future economic activity than gross domestic product because it contains forward-looking information.

A similar survey is expected from the state-affiliated China Federation of Logistics and Purchasing in the next few days.

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