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China’s manufacturing growth slows in April

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China’s manufacturing growth slowed in April, a survey showed on Sunday, suggesting that the government’s tightening efforts have weighed on the world’s second-largest economy more heavily than expected.

The official purchasing managers’ index for China fell to 52.9 in April from 53.4 in March, well shy of market forecasts for an increase to 54.0.

The survey, which is designed to provide a snapshot of conditions in China’s vast manufacturing sector, was largely in line with a separate PMI sponsored by HSBC published on Friday that clung near a seven-month low at 51.8 in April.

With inflation running at its fastest in nearly three years, China has taken a series of policy actions to rein in prices, raising interest rates and banks’ required reserves multiple times, ordering banks to lend less and speeding up the pace of currency appreciation.

On the positive side of the ledger, the official PMI showed that these steps have at least partially hit the mark. A sub-index measuring input prices fell to 66.2 in April, a seven-month low, from 68.3 in March.

But the survey also flashed worrying signals for the global economy, which has become increasingly reliant on Chinese demand as a source of growth with the United States, Europe and Japan still struggling to recover from the financial crisis.

“Overall, the PMI shows there is still a possibility that the Chinese economy may slow down, especially as falling demand growth leads to adjustments in inventories, increasing the possibility of slowing economic growth,” said Zhang Liqun, a government researcher.

The new orders sub-index weakened to an eight-month low of 53.8 in April from 55.2 in March. Much of that drop was driven by slower growth in export orders, whose sub-index dipped to 51.3 from 52.5.

“The fall may show that export growth will continue to slow down,” Zhang said in a comment on behalf of the China Federation of Logistics and Purchasing, which compiles the official PMI.


Despite Beijing’s sustained tightening campaign over the past half year, economists polled by Reuters still expect the Chinese economy to expand at a nearly double-digit pace this year. They forecast that it will grow 9.5 percent in 2011 after last year’s 10.3 percent expansion.

In a measure of that robust momentum, it was the 26th straight month that the official PMI had stood above the threshold of 50 that demarcates expansion from contraction.

The World Bank said on Thursday it was too early for China to halt its policy tightening as it raised its year-average inflation forecast in a quarterly review of the economy.

Stubborn price pressures have fueled market talk that Beijing could let the yuan rise at a faster clip, or even take more drastic action by pushing through a large revaluation of the currency.

The government has in the past consistently ruled out a one-off revaluation, saying there were no grounds for any major shift in exchange rate policy. Yet it has demonstrated its appetite for a gradually stronger yuan in recent weeks by guiding it to a succession of record highs against a sluggish dollar.

Investors are on guard for the next round of Chinese monetary tightening. The central bank has raised interest rates four times since October and economists polled by Reuters expect another increase over the next two months.
Source: Reuters

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