According to China Federation of Logistics and Purchasing, China's manufacturing activities continued to slow in May 2011, with a key economic leading indicator falling to a nine month low amid the government's efforts to curb soaring prices and cool the economy.
The Purchasing Managers Index of the manufacturing sector, which measures manufacturing activities, dropped 0.9 percentage points month on month to 52% in May 2011, extending the monthly decline to the second consecutive month. The PMI figure was 52.9% in April 2011, 53.4% in March 2011, 52.2% in February 2011 and 52.9% in January 2011.
A reading above 50% indicates economic expansion, while below 50% indicates contraction. China's PMI has remained above the boom and bust line for 27 consecutive months.
With regard to the sub indexes, the purchase price index, which assesses the cost of raw materials, led the declines with a month on month drop of 5.9 percentage points in May, while the new orders index, backlog orders index and raw material inventory index all posted declines of more than 1 percentage point. The CFLP data show that the new orders index, which reflects domestic demand, fell 1.7 percentage points from April to 52.1% in May.
Mr Zhang Liqun, a researcher with the Development Research Center of the State Council, said in the CFLP statement that "The continuous decline underlines that China's economy is more likely to slow down. Furthermore, the sharp decline of the purchase price index suggests the inflationary expectations may ease."
Before the CFLP published the official PMI data, the market widely expected the reading to drop below 52%.
Analysts said the slowdown of economic growth and the decline of purchase prices would further test Chinese policymakers, who have endeavored to balance economic growth and control inflation.
Mr Cai Jin VP of CFLP said that the 5.9 percentage point decline of purchase price index suggests the impact of rising commodity prices on domestic inflation may be weakening.
According to Mr Cai, the Gross Domestic Product growth matching the May PMI data was around 9%. He said that "All we need now is to prevent the demand growth from declining too excessively and leading to insufficient momentum to power the economy."
China's GDP expanded 9.7% in the first quarter of 2011 from a year earlier, compared with 9.8% in the fourth quarter last year. The central government has declared curbing soaring inflation its top priority this year and adopted a series of tightening measures to cool the economy, with an annual inflation control target of 4%.
The Consumer Price Index, a main gauge of inflation, rose 5.3% YoY in April 2011.
Mr Li Miaoxian, an analyst with the BOCOM International Holdings Co Limited, urged caution, saying it was too early to tell if imported inflationary pressure had eased as the drop in purchase prices was closely related to the adjustment of commodity prices on the global market in May. He said that "Commodity price fluctuations are expected in the future."
The National Bureau of Statistics will release the CPI data for May on June 14th 2011.
Ms Wang Tao, chief economist for UBS Securities (China), predicted PMI to further slide to barely above 50% in June and the risks for PMI to fall below the boom or bust line are increasing. She said that accordingly, China's GDP growth will slow to 8% QoQ in the second quarter this year or 9.5% YoY.
Compared with the CFLP data, the HSBC China Manufacturing PMI, released previously on Wednesday, dropped to a 10 month low of 51.6% in May, higher than its preliminary reading of 51.1% published on May 23rd 2011.
The HSBC survey covers 400 companies, while the CFLP's monthly PMI reports on the data of 820 companies across a range of sectors, including energy, metals, textiles, automobiles and electronics.
(Sourced from www.xinhuanet.com)
