China Factory Growth Slows, PMI in Retreat

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Feb. 24 – China’s manufacturing has slowed to its lowest pace in seven months while the HSBC Purchasing Managers Index (PMI) fell three points to 51.4, and is the lowest since last July. A figure below 50 denotes decline, a figure above, growth.

New export orders from China dipped below 50 for the first time, although HSBC Chief Economist Qu Hongbin said the domestic market was holding up relatively well. He did, however, express concern over inflation, saying that both input and output figures “continued to trend up beyond their historical averages.”

The employment sub-index also declined under tight monetary policies, but may have broken the 50 point mark as Chinese workers may not have returned to jobs yet following the Chinese New Year holidays. Consumer prices meanwhile continue to rise – 4.9 percent during February, and faster than the 4.6 percent increase in December.

In comparison, India has just removed its fiscal stimulus plan in the face of its own inflationary pressures, while in contrast to China, its own factory output has consistently been growing.

China needs to cool its economy to deal with the potential specter of inflationary pressures, while at the same time rebalance its fiscal performance to better develop its domestic market. At present, that is working, but at the expense of lower margins for the manufacturing industry as costs of business rise, coupled with a slowing economy.

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