HSBC China PMI steady in Sept, inflation quickens

BEIJING, Sept 30 Thu Sep 29, 2011 10:30pm EDT

BEIJING, Sept 30 (Reuters) - HSBC's China Purchasing Managers' Index showed the factory sector contracted slightly for a third consecutive month in September due to weaker global demand, while factory inflation quickened to a four-month high.

The HSBC purchasing managers' index (PMI), which previews business conditions in a range of industries before official monthly output data, was at 49.9 in September, unchanged from August.

The final reading for HSBC's China PMI is stronger than the flash PMI reading of 49.4 published last week.

"This implies that although the lagged effects of credit tightening will continue to cool industrial activity in the months ahead, there is little need to worry about a sharp slowdown," said Qu Hongbin, China economist at HSBC.

In PMI releases around the world, the 50-point level typically demarcates expansion from contraction in factory output.

HSBC believes a PMI reading of as low as 48 in China still points to annual growth of 12-13 percent in industrial output and a 9 percent expansion in gross domestic product.

Qu expects China's economic growth to hold up at around 8.5-9 percent in the coming years, despite the global slowdown.

Factory inflation in China quickened markedly in September, with the sub-index for input prices climbing to a four-month high of 59.5 in September from 55.9 in August.

That could imply upward pressure on consumer inflation, which pulled back to 6.2 percent in the year to August from a three-year high of 6.5 percent in July.

The central bank is holding off on further tightening as jitters about a global slowdown increase. Since last October, China has raised interest rates five times and banks' reserve requirement ratios (RRR) nine times.

However, the report by British research firm Markit also highlighted some worrying trends. For instance:

-- Factory output rose during September, but the output sub-index indicated only marginal expansion. Firms linked the subdued production growth to weak expansion in new business.

-- The new orders sub-index hovered below 50 for a second successive month, but the pace of reduction in new orders was only marginal. Firms reported softer client demand from both domestic and external markets.

-- The new export orders sub-index remained below 50 for a fifth straight month. However, the rate of decline was negligible, with the vast majority of firms reporting no difference in overseas order levels since the preceding month. -- Average input prices continued to rise in September, which companies attributed to higher raw material costs. -- The sub-index for stocks of purchases rose but stayed below 50, signalling a decline in stocks of raw materials and semi-manufactured goods. The rate of inventory depletion was solid. -- The employment sub-index fell below 50 in September, signalling a slight decline in manufacturing jobs. (Reporting by Kevin Yao; Editing by Ramya Venugopal and Ken Wills)