China factory growth at 7-month low - HSBC flash PMI

Tuesday, 22 February 2011 00:00 - - {{hitsCtrl.values.hits}}

(Reuters) - The steady ratcheting-up of monetary tightening has combined with the Lunar New Year holiday to weigh on China’s factories in February, even as inflation has continued to accelerate, a survey showed on Monday.

The HSBC flash manufacturing purchasing managers’ index (PMI), making its debut, hit 51.5 in February, down from a final reading of 54.5 a month earlier.

The flash PMI, designed to provide an early indication of the final data, which is due a week later, suggested that China’s industrial sector was expanding at its slowest pace in seven months.

“The Chinese New Year holiday may be a factor but not the only reason. It also implies that quantitative tightening is starting to filter through, yet more still needs to be done to check inflation,” said Qu Hongbin, HSBC’s chief China economist.

The sub-indexes measuring input prices and output prices were both on track to accelerate to three-month highs in February, as manufacturers facing rising global commodity costs tried to charge consumers more to recoup their spending.

China on Friday raised required reserves to a record 19.5 percent, the fifth increase since October, during which time it has also raised interest rates three times and ordered banks to lend less.

Economists believe that China may be just about past the mid-point in a tightening cycle to tamp down on inflation, which is running near its fastest in more than two years.

According to the flash PMI, new orders have increased more slowly in February, while export orders have registered an outright decline, indicating that business growth has been generated almost entirely domestically.

Monday marked the launch of the flash PMI, which will serve as one of the earliest available performance indicators for the world’s second-largest economy.

The flash PMI is based on up to 90 percent of total responses to the monthly survey and is designed to be an accurate snapshot of the final data, which is usually released on the first working day of every month.

China looks abroad in deciding on yuan

BEIJING: China cannot let its currency appreciate just because of foreign pressure, but even so it must weigh international factors in making decisions about how to manage the yuan, said a senior Chinese foreign ministry official on Monday.

“We can’t lightly and rashly let the yuan appreciate because of international pressure,” said the official, who declined to be named because he was not authorised to speak on the record.

“But at the same time, we cannot just proceed from our domestic economic policies in deciding whether or not the yuan appreciates. We also consider international factors and so on.”