China manufacturing to post slower growth because of weak demand

01 July 2011 08:33  [Source: ICIS news]

GUANGZHOU (ICIS)--China’s manufacturing sector is expected to see slower growth in the coming months because the country’s overall demand is expected to remain weak, analysts said on Friday.

The country’s purchasing managers’ index (PMI) hit a 28-month low of 50.9% in June, according to the China Federation of Logistics & Purchasing (CFLP).

“The decrease [of the] PMI is a result of continuous tightening on economic policies. Both domestic demand and overseas demand were contracting [in June],” said Peng Wensheng, chief economist at Beijing-based investment bank, China International Capital Corp (CICC).

Overall domestic demand is soft because of restrictions on the country’s property market and car consumption, high loan costs and destocking among producers, analysts said.

The analysts added that the weak economies in the US and Europe are lowering overseas demand from China.

Both domestic and overseas demand is unlikely to increase in the next two months, Peng said.

The Chinese government may continue its tight lending policies in the near term as inflation remains high, according to Peng.

“The central bank may hike its interest rates twice in the third quarter [of the year],” Peng added.

Although China’s PMI forecasts a stable economy, analysts said there will be minimal risk of a sudden slump.

The analysts are expecting inflation to stabilise and the country’s manufacturing sector to grow at a faster pace in the third quarter of this year.

“Both investment and consumption is growing, so there will not be a sudden downturn in the economy,” Peng said.

The economy is likely to make a soft landing in the third quarter, Peng added.

By: Fanny Zhang
+65 6780 4359

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