December 3, 2023

Factories Slow Their Output Growth in China

BEIJING — Chinese manufacturing growth slowed in April, a survey showed Sunday, suggesting that the government’s monetary tightening efforts had weighed on the economy more heavily than expected.

The official purchasing managers’ index for China fell to 52.9 in April from 53.4 in March, well shy of market forecasts of an increase to 54. Readings higher than 50 indicate expansion, lower than 50 signify contraction.

The survey, which is designed to provide a snapshot of conditions in the vast Chinese manufacturing sector, was largely in line with a separate purchasing mangers’ index sponsored by HSBC that was published Friday.

With inflation running at the fastest rate in nearly three years, China has taken a series of policy actions to rein in prices, raising interest rates and banks’ required reserves multiple times, ordering banks to lend less and speeding up the pace of currency appreciation.

The official data on Sunday showed that those steps had at least partially hit the mark. A subindex measuring input prices fell to 66.2 in April, a seven-month low, from 68.3 in March.

But the survey also flashed worrying signals for the global economy, which has come to rely increasingly on Chinese demand as a source of growth as the United States, Europe and Japan continue struggling to recover from the financial crisis.

“Over all, the P.M.I. shows there is still a possibility that the Chinese economy may slow down, especially as falling demand growth leads to adjustments in inventories, increasing the possibility of slowing economic growth,” said Zhang Liqun, a government researcher.

The subindex measuring new orders weakened to an eight-month low of 53.8 in April from 55.2 in March. Much of that drop was driven by slower growth in export orders. The subindex for those orders dipped to 51.3 from 52.5.

“The fall may show that export growth will continue to slow down,” Mr. Zhang said in a comment on behalf of the China Federation of Logistics and Purchasing, which compiles the official index.

Despite Beijing’s sustained tightening campaign over the past half year, economists polled by Reuters still say they expect the Chinese economy to expand at nearly a double-digit pace this year. They forecast that it will grow at a rate of 9.5 percent in 2011 after a rate of 10.3 percent last year. In a measure of that robust momentum, it was the 26th consecutive month that the official index had stood above the threshold of 50.

The World Bank said Thursday that it was too early for China to halt its tightening as it raised its inflation forecast in a quarterly review of the economy.

Stubborn price pressures have fueled market talk that Beijing could let the renminbi rise at a faster clip or even take more drastic action by pushing through a large revaluation of the currency.

The government has in the past consistently ruled out a one-time revaluation, saying there were no grounds for any major shift in exchange rate policy. Yet it has demonstrated its appetite for a gradually stronger renminbi in recent weeks by guiding it to a succession of record highs against a sluggish dollar.

Investors are on guard for the next round of Chinese monetary tightening. The central bank has raised interest rates four times since October, and economists polled by Reuters expect another increase over the next two months.

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