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China's manufacturing growth slows in January

Source:   Time:

Growth in China's manufacturing sector slowed in January amid the government's efforts to cool price pressures, a key index released Tuesday showed.

China's manufacturing sector purchasing managers index (PMI) fell to a five-month low of 52.9 percent in January, compared with 53.9 percent in December, the China Federation of Logistics and Purchasing (CFLP) said Tuesday.

The January figure means the benchmark index for economic expansion has remained above the boom-or-bust line of 50 percent for 23 consecutive months.

Analysts said authorities' moves to cool prices prompted the PMI decline and the economic outlook remained unclear.

Zhang Liqun, a research fellow with China's top government think-tank -- the Development Research Center of the State Council -- said the continued slowdown in the January PMI data showed economic uncertainty remained and the data would likely drop further in months to come.

The December manufacturing sector PMI figure fell 1.3 percentage points to 53.9 percent from November.

Sub-indices of the January manufacturing sector PMI data, which tracked the performance of production, new export orders, inventory and employment, all fell by more than 2 percentage points from December, but the purchase prices of raw materials rose.

"This showed manufacturing enterprises are facing greater pressure and more difficulty with increasing costs and shrinking orders," Zhang said.

He Yifeng, a senior researcher who had kept tracing PMI figures with Hongyuan Securities, said the January PMI data was a good sign that the economy was slowing remarkably.

China's consumer price index (CPI), a main gauge of inflation, rose 4.6 percent year on year in December and the full-year CPI climbed 3.3 percent in 2010, exceeding the central government's official target of 3 percent.

Mounting inflation pressure prompted the People's Bank of China (PBOC), the central bank, to adopt more tightening measures, including a hike in the bank reserve requirement ratio by 50 basis points on January 20.

The central government imposed tougher measures in cities where home prices are skyrocketing, such as restrictions on home purchases and an increase in the minimum down payment requirement for the purchase of a second home to 60 percent of the property's value.

"The drop of PMI in January was remarkable, but the decline also had a positive meaning," said Cai Jin, vice-president of CFLP. "Because the 10.3 percent of economic growth last year was a little too high, a fall in PMI data in January was closely related to the government's macro control measures and it was helpful to tame inflation."

The HSBC China Manufacturing Purchasing Managers Index, another survey released Tuesday, however, edged up to 54.5 last month from a three-month low of 54.4 in December.

The HSBC survey covers 400 companies, while the CFLP's monthly PMI reports measure data from 820 companies across a range of China's manufacturing sector.

Haitong Securities analyst Liu Tiejun attributed the CFLP PMI decline to the government's tightening measures and the seasonal effect of the Spring Festival, or the Chinese Lunar New Year, which falls on Thursday.

A PMI reading above 50 percent indicates economic expansion. One below 50 percent indicates contraction.

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