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China manufacturing falls to seven-month low
by Staff Writers
Shanghai (AFP) July 1, 2012

China's manufacturing activity fell to a seven-month low in June, official figures showed Sunday, despite government efforts to arrest a slowdown in the world's second largest economy.

The official purchasing managers' index (PMI) slipped to 50.2 in June from 50.4 in May, industry group the China Federation of Logistics and Purchasing said in a statement.

The June figure marked the lowest reading since November last year, when PMI hit 49, according to previously released data. A PMI reading above 50 indicates expansion, while a reading below 50 means contraction.

Analysts saw a glimmer of hope in the latest figure, as it was better than expected, but they believe the government must further ease monetary policy to avert a sharp slowdown in economic growth.

"June PMI continued to fall, but with an obviously smaller margin, which indicates the fall in economic growth may stabilise," Zhang Liqun of government think-tank the Development Research Centre said in the statement.

In May, the PMI index fell nearly three percentage points from April.

For June, economists had forecast the index would fall below 50 for the first time since November, predicting an average 49.8, Dow Jones Newswires said.

Zhang, who acts as an analyst for the federation, cited government stimulus policies aimed at spurring investment and boosting domestic consumption as well as a rebound in exports as factors supporting growth.

China on June 8 cut interest rates for the first time in more than three years, while the government has also trimmed the amount of cash banks must keep in reserve three times since December, most recently in May.

"China will likely continue to introduce easing policies in the second half," Liao Qun, Hong Kong-based economist at Citic Bank International, told AFP.

But he raised worries about exports. The latest figures showed new export orders -- a component of PMI -- slid into contraction at 47.5 in June from 50.4 in May due to overseas turmoil.

"The turmoil with the international situation has continued and will likely remain a big factor of uncertainty for China's exports in the second half," Liao said.

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 figure for the second quarter on July 13.

The government has already reduced its economic growth target for this year to 7.5 percent, down from growth of 9.2 percent for all of last year and 10.4 percent in 2010.

Another gauge of PMI compiled by British banking giant HSBC has painted a more negative picture of manufacturing.

HSBC's preliminary measure of PMI fell to a seven-month low in June to 48.1, the eighth consecutive month of contraction. The bank will release its final figure for June on Monday.

HSBC's PMI measure gives more weighting to small firms, which have suffered more than state-owned giants in the economic downturn.


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