China Manufacturing Weak As Small Firms Hurt More

HONG KONG (AP) -- Chinese manufacturing remained weak last month with small and mid-sized private businesses suffering a bigger share of the pain, two surveys indicated Thursday, adding to an uncertain outlook for the world's No. 2 economy.

The official China Federation of Logistics and Purchasing's manufacturing index strengthened slightly to 50.3 from June's 50.1. Separately, the private HSBC purchasing managers' index fell to an 11-month low of 47.7 from 48.2 in June. Both use a 100-point scale on which numbers below 50 indicate contraction.

Analysts said the federation's survey mostly covers big state-owned enterprises while the HSBC survey is more geared to small and medium-sized private companies.

The HSBC report said output at Chinese manufacturers fell as total new orders dropped at the sharpest rate in 11 months because of a decline in new business in both China and overseas. Export orders fell for the fourth straight month, though at a slower pace. Exporters told researchers that new sales to Europe, Southeast Asia and the U.S. fell from June. Chinese manufacturers shed jobs at the fastest pace in four years.

The federation's survey also found that new export orders, while improved, remained below an index reading of 50 last month

Fallout from China's manufacturing slump may be felt globally, as declining orders result in less demand for iron ore and other commodities from countries such as Australia and Brazil and for industrial components from Southeast Asia, Taiwan and South Korea.

China has recorded five straight quarters of growth below 8 percent, a substantial economic cooling for a country that previously grew at double-digit rates.

Analysts said the survey results indicate smaller private companies may still be feeling the effects of a credit shortage that began in June as Chinese regulators try to rein in a lending boom over fears it could race out of control. The credit crunch caused interest rates on loans between banks to spike to a record high.

"Smaller companies probably have been affected more by the liquidity squeeze," said Wei Yao, China economist at Societe Generale.

China's central bank wants to tighten lending standards, which should reduce risk but is likely to reduce financing for private businesses that generate China's new jobs and wealth.

"We shouldn't dismiss the positive side in the official PMI, but at the same time the HSBC PMI is a reminder that things are still difficult especially, with smaller companies," she said. "So basically that suggests as a whole if there is a recovery, it's a very gradual one and it's still quite unstable."

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