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China's April PMI of manufacturing sector drops amid tightening moves

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BEIJING, May 1 (Xinhua) -- China's manufacturing expanded at a slower pace in April, suggesting a possible economic slowdown and decrease in inflationary pressures.

The country's manufacturing sector PMI, a key measure of the outlook for industrial growth, dropped to 52.9 percent in April, the China Federation of Logistics and Purchasing (CFLP) said Sunday.

The PMI figure was 53.4 percent in March, 52.2 percent in February and 52.9 percent in January.

A reading above 50 percent indicates economic expansion, while below 50 percent indicates contraction. China's PMI has remained above the boom-and -bust line for 26 consecutive months .

The CFLP said in a statement that the drop indicates that China's economy is moving along the direction set by its macro control policies.

"The drop is in line with the slowing growth in domestic demand and may add to possibilities of a slowdown in economic growth," Zhang Liqun, a researcher with the Development Research Center of the State Council, said in the statement.

The CFLP data indicated that the new orders index, which reflects domestic demand, fell 1.4 percentage points to 53.8 percent in April.

"This shows the country's macro control policies have worked. The quality and efficiency of economic growth is improving. Meanwhile, inflationary pressure will ease gradually after peaking in one or two months," said Cai Jin, vice president of CFLP.

Cai noted that the drop in new orders in April indicates pressures of cost and liquidity are increasing as new orders normally booked strong increases, in previous years, in March and April.

According to the CFLP data, both the manufacturing industry's backlog orders and stocks of finished goods remained at around 50 percent, indicating there is a good fit between production and demand.

Meanwhile, the industry's import index slid 1.4 percentage points to 50.6 percent and the new export order index dropped 1.2 percentage points to 51.3 percent in April.

"The slowdown in foreign trade followed recent foreign exchange rate changes and export tax rebate adjustments," said Zhu Jianfang, chief economist with CITIC Securities.

China's currency, the Renminbi, went up 61 basis points on Friday to a new exchange of 6.4990 yuan per U.S. dollar, breaking the symbolic 6.50 ratio for the first time after being preceded by historic highs during the previous two days.

With a view to meeting the country's targets for energy conservation and emissions reduction, China canceled export rebates for some steel and non-ferrous products beginning July 15 last year.

The purchasing price barometer, a sub-index that measures the cost of raw materials, went down 2.1 percentage points to 66.2 percent in April, suggesting price rises are easing.

Liu Tiejun, an analyst with Haitong Securities, estimated that the imported inflationary pressures would ease in coming months as there is limited room for further rises in commodity prices.

"If we can keep the demand stable, the drop in purchasing prices is a good thing for enterprises. They can seek new balance points between demand and prices in the future," said Liu.

The CFLP data compares with the HSBC China Manufacturing PMI, which remained unchanged at 51.8 percent in April when compared to March.

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 sectors, including energy, metals, textiles, automobiles and electronics.

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