China PMI Eases but Factory Output Stays Strong: HSBC..
HSBC's China Purchasing Managers' Index fell to a three-month low in December as output and new orders both eased, but the country's vast manufacturing sector continued to expand strongly towards the year-end.
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The index, which is designed to provide an early indication of conditions in a broad range of industries, dipped to 54.4 from 55.3 in November but remained above the long-run series average of 52.3.
China's manufacturing sector growth in the fourth quarter as a whole was the strongest since the first quarter of 2010.
A reading above 50 indicates expansion on the month; a figure below 50 denotes contraction.
The PMI also showed that inflationary pressure remained elevated in December, though had perhaps peaked.
The input cost sub-index fell to a three-month low of 72.3 from 80.8 in November, while the output cost sub-index edged down to a four-month low. But both figures were still well into expansionary territory, indicating that firms were passing higher raw material costs onto their customers.
"Inflation rather than growth still remains the top policy concern, despite the moderation in December's manufacturing PMI reading," said Qu Hongbin, Chief Economist China at HSBC.
"We expect Beijing to continue to rely on quantitative tightening measures to curb inflation and counter the impact of QE2, while modest interest rate hikes are also needed to anchor inflation expectations in the coming months."
The People's Bank of China raised interest rates on Saturday for the second time in just over two months. Analysts polled by Reuters expect it to raise rates twice more in the first half of 2011.
Inflation raced to a 28-month high of 5.1 percent in November.
The intensification of policy tightening also reflects the government's confidence that the world's second-largest economy is fundamentally in good shape.
Easing, Not Falling
Other highlights from the HSBC/Markit survey included:
- The slowdown in new order growth was insufficient to prevent a further rise in backlogs of work, which in turn prompted firms to hire additional staff, Markit said.
- It also noted that new export orders expanded at a much slower rate than overall new orders, showing that overall manufacturing growth was driven mainly by domestic demand.
- Firms reported higher energy and fuel prices in December.
- The output component of the PMI eased to the slowest in three months, but the pace of expansion was still steep and only slightly slower than the rates recorded in the first quarter of 2010.
- Inventories of finished goods in the manufacturing sector fell again in December, extending the current period of contraction to five month.
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