July 21 (Bloomberg) -- China’s manufacturing may contract
for the first time in a year as output and new orders drop,
preliminary data for a purchasing managers’ index indicated.
The gauge fell to 48.9 for July from a final reading of
50.1 for June, HSBC Holdings Plc and Markit Economics said in a
statement today. The final July reading is due Aug. 1.
Today’s data adds to evidence that growth in the world’s
second-largest economy is slowing on Premier Wen Jiabao’s
campaign to tame consumer and property prices. The International
Monetary Fund said in a report released late yesterday in
Washington that risks for the economy include the threat of
faster-than-expected inflation, a real-estate bubble, and bad
loans from stimulus spending.
“The data are another sign that the monetary tightening
measures that commenced last October are biting,” said Tim
Condon, the Singapore-based head of Asia research at ING Groep
NV. “If there is a concern that growth is slowing too much,
past practice is that there will be a pause in the tightening.”
The benchmark Shanghai Composite Index fell 0.6 percent to
2,776.93 as of the 11:30 a.m. local-time break in trading.
The yuan rose to a 17-year high after the central bank set
the strongest reference rate since a dollar peg was scrapped
exactly six years ago. It was 0.12 percent stronger at 6.4515
per dollar at 12:04 p.m. in Shanghai, the biggest advance in a
week, according to the China Foreign Exchange Trade System.
Cost Pressure
Lu Ting, a Hong Kong-based economist at Bank of America
Merrill Lynch, said the HSBC survey may be “more downward-
biased” than an official PMI because the average size of the
businesses covered is smaller. Such companies “are under
increasing pressure” from labor costs and to secure capital, Lu
said. He advised investors to “not overly respond” to the data.
The government has raised interest rates five times since
mid-October, boosted lenders’ reserve requirements to a record
level and imposed curbs on property investment and home
purchases.
Inflation, which has breached the government’s 2011 target
of 4 percent every month this year, accelerated to 6.4 percent
in June from a year earlier, the highest level in three years.
The IMF said in the report that China’s economy “remains
on a solid footing, propelled by vigorous domestic and external
demand.” The Washington-based lender’s 24 directors also
“generally agreed” that a stronger yuan would help rebalance
the China’s economy toward domestic demand.
Slowing Demand
HSBC’s preliminary index, known as the Flash PMI, is based
on 85 percent to 90 percent of responses to a survey of
executives in more than 400 companies. Output in July contracted
at a faster rate, export orders shrank at a slower pace and the
gauge of new orders dropped below 50, the dividing line between
expansion and contraction, today’s data showed.
Manufacturing in some industries is being hit by slowing
demand. Li Ning Co., China’s largest sportswear maker and
retailer, said July 7 its first-half sales dropped by about 5
percent. The China Association of Automobile Manufacturers said
July 8 that vehicle sales may increase about 5 percent this year,
compared with an earlier estimate for 10 percent to 15 percent
growth, due to lower demand for commercial autos.
The preliminary number has matched the final reading twice
since HSBC began publishing the series in February. If it’s
confirmed on Aug. 1, the index will have dropped to its lowest
level since March 2009. It last fell below 50 in July 2010.
‘Complicated Situation’
Today’s data “implies that June’s rebound in industrial
production was just temporary,” Qu Hongbin, chief China
economist at HSBC in Hong Kong, said in a statement. “We expect
industrial growth to decelerate in the coming months as
tightening measures continue to filter through.”
Industrial output climbed 15.1 percent in June from a year
earlier, the fastest pace since May 2010. Gross domestic product
climbed 9.5 percent in the second quarter from a year earlier,
slowing from 9.7 percent in the first quarter.
China’s companies will face a “more complicated”
situation in the second half of this year from rising raw
material, energy and labor costs, the Ministry of Industry and
Information Technology said today. Still, output growth of 13 to
15 percent is “possible and reasonable” for the rest of the
year, ministry spokesman Zhu Hongren said at a briefing in
Beijing.
for the first time in a year as output and new orders drop,
preliminary data for a purchasing managers’ index indicated.
The gauge fell to 48.9 for July from a final reading of
50.1 for June, HSBC Holdings Plc and Markit Economics said in a
statement today. The final July reading is due Aug. 1.
Today’s data adds to evidence that growth in the world’s
second-largest economy is slowing on Premier Wen Jiabao’s
campaign to tame consumer and property prices. The International
Monetary Fund said in a report released late yesterday in
Washington that risks for the economy include the threat of
faster-than-expected inflation, a real-estate bubble, and bad
loans from stimulus spending.
“The data are another sign that the monetary tightening
measures that commenced last October are biting,” said Tim
Condon, the Singapore-based head of Asia research at ING Groep
NV. “If there is a concern that growth is slowing too much,
past practice is that there will be a pause in the tightening.”
The benchmark Shanghai Composite Index fell 0.6 percent to
2,776.93 as of the 11:30 a.m. local-time break in trading.
The yuan rose to a 17-year high after the central bank set
the strongest reference rate since a dollar peg was scrapped
exactly six years ago. It was 0.12 percent stronger at 6.4515
per dollar at 12:04 p.m. in Shanghai, the biggest advance in a
week, according to the China Foreign Exchange Trade System.
Cost Pressure
Lu Ting, a Hong Kong-based economist at Bank of America
Merrill Lynch, said the HSBC survey may be “more downward-
biased” than an official PMI because the average size of the
businesses covered is smaller. Such companies “are under
increasing pressure” from labor costs and to secure capital, Lu
said. He advised investors to “not overly respond” to the data.
The government has raised interest rates five times since
mid-October, boosted lenders’ reserve requirements to a record
level and imposed curbs on property investment and home
purchases.
Inflation, which has breached the government’s 2011 target
of 4 percent every month this year, accelerated to 6.4 percent
in June from a year earlier, the highest level in three years.
The IMF said in the report that China’s economy “remains
on a solid footing, propelled by vigorous domestic and external
demand.” The Washington-based lender’s 24 directors also
“generally agreed” that a stronger yuan would help rebalance
the China’s economy toward domestic demand.
Slowing Demand
HSBC’s preliminary index, known as the Flash PMI, is based
on 85 percent to 90 percent of responses to a survey of
executives in more than 400 companies. Output in July contracted
at a faster rate, export orders shrank at a slower pace and the
gauge of new orders dropped below 50, the dividing line between
expansion and contraction, today’s data showed.
Manufacturing in some industries is being hit by slowing
demand. Li Ning Co., China’s largest sportswear maker and
retailer, said July 7 its first-half sales dropped by about 5
percent. The China Association of Automobile Manufacturers said
July 8 that vehicle sales may increase about 5 percent this year,
compared with an earlier estimate for 10 percent to 15 percent
growth, due to lower demand for commercial autos.
The preliminary number has matched the final reading twice
since HSBC began publishing the series in February. If it’s
confirmed on Aug. 1, the index will have dropped to its lowest
level since March 2009. It last fell below 50 in July 2010.
‘Complicated Situation’
Today’s data “implies that June’s rebound in industrial
production was just temporary,” Qu Hongbin, chief China
economist at HSBC in Hong Kong, said in a statement. “We expect
industrial growth to decelerate in the coming months as
tightening measures continue to filter through.”
Industrial output climbed 15.1 percent in June from a year
earlier, the fastest pace since May 2010. Gross domestic product
climbed 9.5 percent in the second quarter from a year earlier,
slowing from 9.7 percent in the first quarter.
China’s companies will face a “more complicated”
situation in the second half of this year from rising raw
material, energy and labor costs, the Ministry of Industry and
Information Technology said today. Still, output growth of 13 to
15 percent is “possible and reasonable” for the rest of the
year, ministry spokesman Zhu Hongren said at a briefing in
Beijing.
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