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POLITICAL ECONOMY
China manfacturing contracts again in June: HSBC
by Staff Writers
Shanghai (AFP) July 2, 2012


China's manufacturing activity contracted for the eighth consecutive month in June, British bank HSBC said Monday, which analysts say will prompt more government moves to boost the flagging economy.

The bank's purchasing managers' index (PMI) for China, which gauges the manufacturing sector, fell to 48.2 in June from 48.4 in May, according to an HSBC statement.

A PMI reading above 50 indicates expansion, while a reading below 50 points to contraction. A preliminary reading for June was 48.1.

The weaker manufacturing came despite an interest rate cut last month.

The government has been trying to avert a hard landing for the world's number two economy, which has been hit by weakness in key export markets such as the United States and Europe.

China's economy grew an annual 8.1 percent in the first quarter of 2012 -- its slowest pace in nearly three years. The government will release the gross domestic product (GDP) figure for the second quarter next week.

"As external demand has weakened and domestic demand hasn't shown a meaningful improvement in response to earlier easing measures, growth is likely to be on track for further slowdown," HSBC's co-head of Asian economic research, Qu Hongbin, said in a statement.

HSBC forecast GDP growth could slow to 7.8 percent in the second quarter, before rebounding later this year.

"Beijing has plenty of room and policy ammunition to avoid a hard landing. We expect more decisive easing efforts to come through in the coming months," Qu said.

The June 8 rate cut was China's first in more than three years. The People's Bank of China, or central bank, cut the benchmark one-year lending rate by 0.25 percentage points, while the one-year deposit rate fell by the same amount.

Analysts also expect the government to further trim reserve requirements for banks, following three such moves since December last year.

China's official PMI has painted a slightly better picture of the economy.

PMI fell to a seven-month low of 50.2 in June, industry group the China Federation of Logistics and Purchasing said Sunday, but manufacturing activity has not contracted since November last year.

Analysts say the divergence in the PMI measures is caused by HSBC giving more weighting to small firms, which have suffered more than state-owned giants in the current economic downturn.

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