Tags: China | Industrial | Growth | Hits | 6-Month | Low | Tightening

China Industrial Growth Hits 6-Month Low on Tightening

Tuesday, 01 Mar 2011 07:20 AM

Chinese manufacturing grew at slowest pace in at least half a year in February, according to a pair of surveys, as the government's sustained campaign to tame inflation weighed on industrial activity.

But soaring global commodity costs complicated the task of monetary tightening, pushing gauges of factory input prices to three-month highs in both China's official purchasing managers' index and a separate PMI survey sponsored by HSBC.

The official Chinese PMI fell to a six-month low of 52.2 in February from 52.9 in January, the China Federation of Logistics and Purchasing said on Tuesday.

"Inflation pressures are rising but economic activity is slowing. Slower economic growth is good for cooling inflation," said Wang Hu, economist at Guotai Junan Securities in Shanghai.

Since October, when inflation began to pick up, China has raised banks' required reserves five times to a record high, increased interest rates three times and also ordered banks to lend less.

Although the headline PMI was the lowest since August, it topped the median forecast of 52.0 in a Reuters poll. Investors were primed for disappointment after a smaller preliminary survey by HSBC suggested that Chinese manufacturing growth had slowed sharply in early February.

HSBC's final reading hit a seven-month low of 51.7 in February from 54.5 in the previous month, as factory production slowed on slower order growth.

Both of the PMIs, which are designed to provide a timely snapshot of conditions in the manufacturing sector, have been on a downward trend since December, Goldman Sachs economists Yu Song and Helen Qiao said in a research note.

"Such a slowdown might have been contributed to by the tightening in financial conditions, welcome news since it will imply lower underlying inflationary pressures," they said.

Inflation Risks

The input prices sub-index, a measure of how much factories pay for raw materials and intermediate goods, rose to 70.1 in February from 69.3 in January in the official survey, driven up by rising oil and commodity prices.

"This highlights that inflationary risks continue to escalate," said Connie Tse, economist at Forecast Pte in Singapore.

Many economists believe that China may have passed the mid-point in its tightening cycle, with some indications that price pressures are receding.

Zhang Ping, head of the National Development and Reform Commission, said in a speech published on Monday that Chinese inflation would probably ease in February because the steps to curb price growth were beginning to work.

Still, the government is sticking to its tightening stance.

Fighting inflation is a priority for China and the government must ward off threats to social stability stemming from rapid price increases, Premier Wen Jiabao said on Sunday.

Chinese consumer prices in January rose 4.9 percent from a year earlier, accelerating from 4.6 percent in December but below the 28-month high of 5.1 percent in November.

February was the 24th straight month that the official PMI has stood above the threshold of 50 that demarcates expansion from contraction.

"The index stayed above 50, showing that economic growth will not slow by a large margin," Zhang Liqun, an economist in a think-tank under the cabinet, said in a statement accompanying the PMI.

Interpretation of the official index, compiled on behalf of the National Bureau of Statistics, was clouded by the Lunar New Year, with many of the country's businesses shut or running at half speed for the first part of February.

© 2017 Thomson/Reuters. All rights reserved.

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Chinese manufacturing grew at slowest pace in at least half a year in February, according to a pair of surveys, as the government's sustained campaign to tame inflation weighed on industrial activity. But soaring global commodity costs complicated the task of monetary...
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2011-20-01
 

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