China's Manufacturing Boom Eases Further

by Elaine Kurtenbach, AP Business Writer

SHANGHAI (AP) — China's manufacturing boom eased further in January as authorities tightened controls on credit, though inflationary pressures continued to rise, according to data released Tuesday.

The state-affiliated China Federation of Logistics and Purchasing said its purchasing managers index, or PMI, dipped to 52.9 last month, from 53.9 in December and 55.2 in November.

Despite declining for two months, it was the 23rd month that the reading has remained above 50, the benchmark for expansion.

A second, competing survey issued Tuesday, the HSBC China Manufacturing Purchasing Managers Index, edged up in January to 54.5 from a three-month low of 54.4 in December.

The HSBC survey covers 400 companies, while the federation's monthly reports measure data from 820 companies across a range of industries and is an indicator of future trends.

China's inflation rate moderated to 4.6 percent in December from a 28-month high of 5.1 percent in November, suggesting authorities are making progress in cooling surging prices for food and housing.

The government has raised interest rates twice in recent months and repeatedly ordered banks to increase the amount of capital they hold in reserve to help check a flood of lending that is believed to be fueling excess investment in property and other construction, helping to push prices higher.

But lenders tend to "front-load," or rush out credit at the beginning of the year, countering those measures. Meanwhile, rising global commodity prices are further complicating China's efforts to rein in inflation. Many economists are forecasting that consumer prices will remain relatively high for months to come.

Inflation measures within the purchasing managers index reflected strong increases, especially for energy, raw materials and food-related commodities, the report said.

The government-sponsored survey showed steady demand for imports and strong purchasing bymanufacturers. But indicators for new export orders, production and inventories fell, it said, suggesting caution among many manufacturers over prospects for future demand.

"There is no clear sign of a return to steady growth; there could be a continued contraction, and weakness in new exports and new orders means companies are facing overhead pressures," the survey quoted federation analyst Zhang Liqun as saying.

"The troubles companies are facing are rather large," he said.

The HSBC survey appeared, however, to show more robust support for continued strong growth, suggesting further room for credit tightening.

"The strong growth momentum leaves room for Beijing to fully focus on checking liquidity and inflation pressure," Qu Hongbin, chief economist and co-head of Asian Economic Research at HSBC said in a statement.