June 23, 2011 / 10:57 IST
China's factory-sector growth was close to stalling in June even as price pressures eased, a purchasing managers' survey showed on Thursday, reflecting the impact of tightening in monetary policy and slack global demand.
The flash HSBC PMI, the earliest available indicator of China's industrial activity, eased to 50.1 in June, the lowest since July 2010. A sub-index for new orders also dropped to its lowest since July 2010.
The flash PMI reading was just a whisker above the 50-point level that demarcates expansion from contraction and compares with the final reading of 51.6 in HSBC's PMI for May.
"Demand is cooling thanks to the effect of tightening measures and the slackness in external markets," said Qu Hongbin, chief China economist at HSBC.
Qu said that worries about a hard landing for the Chinese economy were "unwarranted" because industrial production is still growing at around 13 percent year on year.
"The good news is that inflationary pressures started to ease meaningfully in June amid slowing demand," he noted.
Most analysts believe China's economic growth is easing in an orderly fashion.
Official data for May showed factory output is growing at a healthy annual pace of 13 percent, well above a 10 percent threshold that suggests a hard landing is at hand, while the fairly reasonable pace of expansion in imports showed domestic demand had not slowed drastically.
The flash PMI showed China's sub-index of factory input prices fell sharply to 52.1 in June from 60.1 in May.
China's headline consumer inflation hit a 34-month-high of 5.5% in May, and many analysts forecast that it could peak in June or July at about 6%.
Uneasy with stubbornly-high inflation, China's central bank signalled last week that taming price pressures remains its top policy priority, effectively brushing aside investor concerns of a sharp slowdown in the economy.
It lifted the reserve requirement ratio for banks last week for the ninth time since October to a record high of 21.5%.
The central bank has launched a series of tightening measures this year, including increasing interest rates. The expansion in money supply slowed to a 30-month low in May while bank lending fell, indicating that tightening was taking effect.
The flash PMI is designed to provide a preview of the final data, which is due on July 1 along with the official PMI.
The flash PMI, compiled by British research firm Markit, is based on up to 90% of total responses to a monthly survey and is designed to be a snapshot of the final data, usually released on the first working day of the month.
This is the fifth month that HSBC has published a flash PMI for China. In May, the flash reading was 51.1, slightly weaker than the final reading.
