China near-term production to slow, January PMI falls to 52.9%

09 February 2011 08:56  [Source: ICIS news]

SHANGHAI (ICIS)--China may be looking at slower manufacturing activities in the coming months as the country’s Purchasing Managers’ Index (PMI) in January declined for the second consecutive month, an analyst said on Wednesday.

The January PMI at 52.9% was a full percentage point lower than December’s, based on official data.

China PMI is a barometer of production activities in factories across the country. While remaining in expansionary mode, as readings had remained above 50%, the pace of growth was cooling down.

Among the PMI sub-indices, the new orders index slipped 0.5 percentage points to 54.9% in January, while production index dropped 2.2 percentage points to 55.3%, based on data from the China Federation of Logistics & Purchasing (CFLP).

These numbers reflected slower activities in industries such as textile, furniture, glass and cement in January, CFLP said.

However, the purchasing index in January rose 2.6 percentage points to 69.3%, as demand for commodities such as energy and consumers goods increased, indicating stronger price pressures, CFLP said.

“These trends suggest that China will suffer from the combination of slower growth and rising inflation at least in the near term, and will likely intensify some market participants' fear of stagflation,” said Jun Ma, chief economist of Deutsche Bank.

The outlook for overall demand is cautious amid high inflation, he said.

China’s inflation was expected to remain high in the first half of 2011, which would require further monetary tightening.

Expectations of further hikes in interest rate hikes, credit controls, restrictions on real estate purchases were depressing new orders, Ma said.

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By: Amanda Zhang
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