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China Manufacturing Eases Over More Regulation

Mon, 01/03/2011 - 3:57am

HONG KONG (AP) — China's manufacturing boom eased off slightly in the last month of the year, a survey said, reflecting tightening policies taken by authorities to keep inflation in check.

The state-affiliated China Federation of Logistics and Purchasing said that its purchasing managers index, or PMI, dipped to 53.9 last month from 55.2 in November and 54.7 in October.

It was the first decline in five months but the 22nd straight month that the reading has stayed above 50, the benchmark for expansion.

The survey Saturday covered 820 companies across a range of industries and is an indicator of future trends.

The federation said in a notice on its website that the index continues to remain at a high level, showing that current economic growth is steady.

A subindex of input prices for raw materials, energy and supplies fell sharply to 66.7 in December from 73.5 in November, indicating that government policies to stabilize prices have met with initial success, the federation said. But it added that there is still large upward pressure on prices.

China raised key interest rates on Dec. 25, the second such move in less than three months as authorities try to keep a lid on inflation, which surged to a 28-month high in November of 5.1 percent. Officials have also raised the amount of money banks must keep in reserve instead of lending out in an effort to restrain massive bank lending that has powered the economy but also driven up inflation.

Goldman Sachs said in a research note that production slowed in December even though restrictions on industrial activity in southern Guangdong province, in place for the Asian Games, were lifted part way through the month. The province is one of China's major manufacturing hubs.

"This suggests a very strong tightening force at work which could be the tightening in financial conditions which has been more than we previously expected," Goldman said.

A competing survey released on Thursday, the HSBC China Manufacturing Purchasing Managers Index, similarly dipped to a three-month low in December. The HSBC survey covered 400 companies.

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