Hong Kong () - China’s manufacturing activity contracted slightly in July, signaling a deterioration in the operating environment at the nation’s factories, as tighter monetary conditions weighed further on the sector, according to data released Monday by HSBC.
The monthly purchasing managers index fell to 49.3, its lowest reading since March 2009, compared with 50.1 in June, HSBC said in its monthly statement. The final outcome was better than the 48.9 print recorded in a preliminary reading that HSBC released a few days earlier.
The data, based on the results of a survey compiled by Markit, confirmed a slowing growth momentum in the manufacturing sector “against the backdrop of sustained tightening and lackluster external demand,” Hongbin Qu, HSBC’s chief economist for China, said in a statement accompanying the data.
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“That said, the current level of the PMI is still consistent with a 12%-13% growth rate of industrial production, which leaves room for Beijing to keep tightening policy through [the third quarter] to check inflation,” Qu said.
The contraction came after policy makers in China raised interest rates and the proportion of deposits banks must keep in reserve several times over the last few quarters, to control price increases.
Official PMI hardly better
HSBC’s PMI release followed an official PMI gauge published earlier Monday by the China Federation of Logistics and Purchasing, which also showed a further slowdown in activity at Chinese factories in July.
The CFLP data showed China’s PMI slipped to 50.7 in July from 50.9 in June, but remained above the expansion/contraction boundary of 50.
Credit Suisse’s China economist Dong Tao said the CFLP PMI data should ease concerns about a “hard landing” for the nation’s economy, though it still signals that growth is moderating.
“We believe that the July PMI data will not alter the policy track Beijing has set for [the second half of 2011]. In case the economy slows down more than expected, we think that it would be fiscal stimulus, rather than monetary easing, that would come to the rescue,” Tao wrote in a report.
Data released by HSBC and the CFLP diverged on input price inflation.
The CFLP’s survey found that a sub-index of input prices eased to 56.3 in July from 56.7 in June.
However, HSBC said its own survey showed that material costs rose slightly in July from the previous month, although the extent of the increase was “muted.”
“Companies that reported an increase in cost burdens generally commented on higher raw-material prices,” HSBC said in its statement.
“Meanwhile, prices charged by manufacturers for their final product rose only marginally, with the rate of inflation easing to the slowest in the current one-year period of higher average tariffs,” HSBC said.