Fri, Dec 31, 2010 - Page 10 News List

PRC manufacturing boom losing a little momentum: survey

AP and Bloomberg, HONG KONG

China’s manufacturing boom lost a little momentum in the final month of the year, though it still continued to expand strongly, a survey released yesterday showed.

The HSBC China Manufacturing Purchasing Managers Index dipped to a three-month low of 54.4 this month from November’s 55.3 on a 100-point scale where numbers above 50 show activity expanding. It is based on responses from about 400 companies.

Production still expanded at a steep pace this month and did not slow enough to allow factories to cut down on order backlogs, HSBC said. To keep up with the work, companies were forced to hire more staff.

Inflation concerns also persist, with factories reporting that input prices continued to rise, although they too eased to the slowest increase in three months.

Prices for raw materials, energy and other supplies needed to make goods rose for the fifth month in a row, survey respondents said. They said prices for basic metals were particularly strong.

As a result, manufacturers continued to pass on their higher costs to customers by charging them more for their goods, HSBC said.

Inflation is a big concern in China. Officials raised interest rates on Saturday for the second time in little more than two months after inflation jumped to 5.1 percent last month, a 28-month high.

A frenzy of lending over the past two years has helped China rebound quickly from the global crisis. Still, combined with bad weather and rising global commodity prices, the lending has also complicated efforts to cool inflation.

“Inflation rather than growth still remains as the top policy concern, despite the moderation in December’s manufacturing PMI reading,” said Qu Hongbin (屈宏斌), HSBC’s chief economist for China.

Qu said he expects authorities in Beijing to take further tightening measures, including additional modest interest rate increases.

Domestic demand appears to be strengthening, the report said, with data suggesting new orders came mainly from the domestic market, while new export business rose at a much slower rate than total new orders.

Meanwhile, the yuan rose to a record of 6.613 against the US dollar yesterday after Sheng Songcheng (盛松成), head of the central bank’s statistics and analysis department, said small and gradual appreciation of the yuan has benefited China’s economy more than hurt it.

The yuan’s appreciation has helped Chinese companies lower the cost of imported goods and improve competitiveness, Sheng said in a speech published yesterday by the Financial News newspaper.

It has also increased imports, helping improve China’s balance of international payments and thereby ease pressure from rapid foreign exchange inflows, Sheng said.

Sheng spoke citing a “recent” central bank survey of about 5,000 industrial companies and 2,100 exporters in 12 provinces, without saying when it was conducted.

A 3 percent appreciation against the US dollar may help boost China’s imports by 0.3 percent, reduce exports by 0.6 percent and narrow the trade surplus by 6 percent, Sheng said, citing the central bank’s estimates.

The 3.06 percent appreciation of the yuan from June 19 to Wednesday would help lower China’s inflation by about 1.04 percentage points, Sheng said.

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