China's manufacturing expands at a slower pace
Source: China Daily Date: 2010-07-05
China's manufacturing expanded at a slower pace for a second month in June, adding to signs that growth in the world's third-largest economy is moderating.
The Purchasing Managers' Index fell to 52.1 from 53.9 in May, the Federation of Logistics and Purchasing said in an e-mailed statement Thursday. That was less than the median 53.2 estimate in a Bloomberg News survey of 12 economists. [PMI of manufacturing sector falls to 52.1%]
The figures indicate the government is succeeding in tempering an expansion that hit an 11.9 percent annual pace in the first quarter, which threatened to inflate consumer and asset prices. Signs of the slowdown have unsettled investors around the world because limited demand in advanced economies has left global growth reliant on emerging markets, led by China. Asian stocks headed for a third day of losses.
"China's growth is off the peak and will gradually cool," Qu Hongbin, a Hong Kong-based economist at HSBC Holdings Plc, said before the release on Thursday. "Still, this is just a slowdown to a more sustainable rate rather than a meltdown."
Qu said "resilient" private consumption and government spending on public housing will help to sustain growth.
That outlook hasn't been shared by investors, who sent the Shanghai Composite Index to a 14-month low on Wednesday. The MSCI Asia Pacific Index dropped 0.9 percent as of 8:52 am in Hong Kong. The world is relying on China to help sustain a recovery that Group of 20 leaders this week described as "uneven and fragile."
Autos, electronics
The manufacturing index, released by the logistics federation and the Beijing-based National Bureau of Statistics, covers more than 730 companies in 20 industries, including energy, metallurgy, textiles, automobiles and electronics.
On June 29, the New York-based Conference Board corrected its leading economic index for China to show the smallest gain in five months in April, fueling investors' concerns that growth is easing and adding to signs of weakness worldwide. Europe's manufacturing and services expansion slowed in June and Japan's industrial production and household spending slipped in May.
Baosteel Group Corp, China's second-biggest steelmaker, this week scaled back its growth plans, cutting its target for capacity in 2012 by 38 percent.
In China, policy makers have spent the first half of the year seeking to prevent property-price bubbles and contain inflation, which surpassed the government's full-year target of 3 percent in May. So far, the winding back of the stimulus has not included an interest-rate increase.
Credit target
The government has told banks to set aside more money as reserves, targeted a 22 percent reduction in new lending from the record $1.4 trillion in 2009, and indicated that the yuan's peg to the dollar is over.
Lu Zhengwei, a Shanghai-based economist at Industrial Bank Co, said concern that an economic slowdown is possible may have damped purchasing managers' sentiment and higher labor costs may have altered hiring plans.
Manufacturers including Honda Motor Co and Foxconn Technology Group have pushed up wages and at least nine Chinese provinces and cities will raise minimum wages from Thursday.
The government has cracked down on property speculation by raising down-payment ratios and mortgage rates for multiple home buyers. Clamping down on local-government borrowing to contain risks from last year's explosion in debt could also limit growth. The finance ministry said it will scrap export rebates on some steel and metal products from July 15 to limit energy consumption and pollution.
"The biggest uncertainty in the outlook later this year may be how determined the government is in meeting its energy and pollution targets and in limiting related industries," said Lu.
Signs that China may be able to maintain momentum include a 49 percent jump in May exports from a year earlier and quickening growth in retail sales. Still, June or July trade data may start to show the effects of Europe's crisis, cabinet researcher Zhao Jinping said, according to a June 28 China Business News report. The statistics bureau is scheduled to release June and second-quarter data on July 15.
