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POLITICAL ECONOMY
China manufacturing index hits nine-month low: HSBC
by Staff Writers
Beijing (AFP) July 01, 2013


China home prices up 7.4% in year to June: survey
Shanghai (AFP) July 01, 2013 - Home prices in major Chinese cities jumped 7.4 percent year-on-year in June, an independent survey showed Monday, despite government moves to curb the property market.

The average cost of new homes in 100 major cities reached 10,258 yuan ($1,672) per square metre last month, the China Index Academy said in a statement.

June marked the seventh consecutive month of rises, it said, although the monthly increase of 0.77 percent narrowed slightly from May's 0.81 percent as banks tightened credit to the property sector due to a liquidity squeeze, the academy said.

For more than three weeks funds have been in short supply on China's interbank market, and the interest rates banks charge to lend to each other have surged to record highs.

The academy, which is owned by Soufun Holdings, China's largest real estate website operator, said banks had tightened mortgage lending as a result of the credit crunch.

But it added: "Looking into the second half, the upward pressure on home prices remains high, driven by multiple factors including demand and the 'heat' in the land market."

Property prices are a sensitive issue in China and authorities have sought for more than three years to control their rise.

Measures to contain prices include restrictions on purchases of second and third homes, higher minimum down payments and taxes in some cities on multiple and non-locally owned homes.

Chinese manufacturing activity contracted further in June, data showed Monday, with a closely watched survey hitting a nine-month low and adding to signs of weakness in the world's second-largest economy.

HSBC said its final purchasing managers' index (PMI) reading came in at 48.2 last month, down from 49.2 in May and the lowest since September. It was also weaker than the bank's preliminary June figure of 48.3.

The index tracks manufacturing activity in China's factories and workshops and is a closely watched barometer of the health of the economy. A reading below 50 indicates contraction, while anything above signals expansion.

China's official PMI also showed weakness, falling to 50.1 in June from May's 50.8, mainly due to falls in output and new orders, according to the National Bureau of Statistics.

"Falling orders and rising inventories added pressure to Chinese manufacturers in June," Hong Kong-based HSBC economist Qu Hongbin said in a statement.

A shortage of funds on the country's interbank market for more than two weeks last month has probably made it harder for smaller companies to borrow money, he said.

"As Beijing refrains from using stimulus, the ongoing growth slowdown is likely to continue in the coming months."

The latest figures add fuel to concerns about the Asian economic powerhouse, which has shown signs of slowing growth this year.

"The magnitude of the PMI drop has shown that China's overall economic activity has decelerated further," said ANZ economists Liu Ligang and Zhou Hao in a research note.

Analysts said the recent liquidity squeeze, which saw the interest rates banks charge each other surge to record highs, has added to downside risks to economic growth.

Policymakers are expected to take measures to end the credit crunch to restore market confidence, they said.

The squeeze eased last week after the central bank said it had offered funds to financial institutions and would continue to do so, claiming liquidity was "ample" and that the situation would "gradually" improve.

On Monday, the seven-day repurchase agreement rate, a benchmark of interbank borrowing costs, fell to 5.43 percent on a weighted average basis from 6.16 percent at Friday's close and a record 30 percent hit in an isolated trade on June 20, according to Dow Jones Newswires.

But the rate remains considerably higher than the 3.30 percent it had averaged this year before the cash crunch started in late May.

China's State Council, or cabinet, has said authorities must "stabilise market expectations", after sharp losses in the country's key stock market.

Beijing has set a growth target for this year of 7.5 percent, the same aim as 2012.

The economy grew only 7.8 percent in 2012, its slowest annual pace in 13 years, and expanded 7.7 percent in the first three months of 2013.

Beijing has said it would tolerate slower growth as it seeks to make domestic demand the driver of economic growth over traditional engines such as investment and exports.

"We believe the Chinese economy is far from out of the woods yet," said Ren Xianfang, a Beijing-based analyst with research firm IHS Global Insight.

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