The slowdown is mainly attributed to easing growth in output and new orders.
China’s manufacturing sector grew a tad slower in December, but there are no concerns about growth, and in fact persistent inflation remains the bigger concern in China, say economists.
The HSBC purchasing managers’ index, which tracks the state of health of the China’s manufacturing economy, fell to a three-month low of 54.4 in December from 55.3 in November.
“But there are no worries about growth as the reading is still well above the long-term average of 52.3,” notes co-head of Asian Economics Research at HSBC Qu Hongbin.
The slowdown, he adds, is mainly attributed to easing growth in output and new orders.
While the softening of the manufacturing PMI is disinflationary, it isn’t sufficient to contain inflation, reasons Qu.
“Inflation rather than growth still remains the top policy concern. We expect Beijing to continue to relying on quantitative tightening measures to curb inflation. Modest interest rate hikes were also needed to anchor inflation expectations in the coming months,” he adds.
Specifically, the output sub-index eased to 56.8, the slowest pace in three months; likewise, the new orders sub-index softened to 55.7, again the lowest level in three months.
The new export orders sub-index dipped to 51.5 in December from 53 in November, but still higher than the average of 50 in the third quarter.
“This implies domestic demand is likely moderating faster than external demand,” says Qu.
Consumer price inflation, which touched 5.1 per cent in November, will likely fall below 5% in December, reckons Qu, but will likely surpass 5% in the first quarter of 2011 before slowing down. “Stable, below-trend growth, plus monetary tightening measures, is helpful in keeping inflation in check.” But the strength of manufacturing activity is “unlikely to be affected meaningfully by the monetary tightening measures, including two rate hikes in three months.”
Despite the slowing new business flows, backlogs of work still increased, with the December reading coming in at 53, higher than the long-term average and also representing the second highest reading in the second half of 2010, adds Qu. “This suggests healthy growth momentum in the coming months.”
The HSBC survey revealed that although staff levels in the Chinese manufacturing sector rose only modestly during December, the rate of job creation was the fastest since June. Employment growth was recorded throughout much of the past two years, although the vast majority of panelists reported that employee numbers were unchanged in December. Where higher staffing levels were reported, growth was linked by respondents to the need to keep pace with increased output requirements, the survey noted.
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