December 30, 2010 / 2:34 AM / 9 years ago

HSBC China PMI eases in Dec but factory output stays strong

   BEIJING, Dec 30 (Reuters) - HSBC's China Purchasing Managers'
Index fell to a three-month low in December as output and new
orders both eased, but the country's vast manufacturing sector
continued to expand strongly towards the year-end.
The index, which is designed to provide an early indication of
conditions in a broad range of industries, dipped to 54.4 from
55.3 in November but remained above the long-run series average
of 52.3.
 China's manufacturing sector growth in the fourth quarter as
a whole was the strongest since the first quarter of 2010.
 A reading above 50 indicates expansion on the month; a figure
below 50 denotes contraction.
 HSBC China PMI (seasonally adjusted):
 Dec   Nov   Oct   Sep   Aug   Jul   Jun   May   Apr   Mar
 54.4  55.3  54.8  52.9  51.9  49.4  50.4  52.7  55.2  55.7
 The PMI also showed that inflationary pressure remained
elevated in December, though had perhaps peaked.
 The input cost sub-index fell to a three-month low of 72.3
from 80.8 in November, while the output cost sub-index edged down
to a four-month low. But both figures were still well into
expansionary territory, indicating that firms were passing higher
raw material costs onto their customers.
 "Inflation rather than growth still remains the top policy
concern, despite the moderation in December's manufacturing PMI
reading," said Qu Hongbin, Chief Economist China at HSBC.
 "We expect Beijing to continue to rely on quantitative
tightening measures to curb inflation and counter the impact of
QE2, while modest interest rate hikes are also needed to anchor
inflation expectations in the coming months."
The People's Bank of China raised interest rates on Saturday
for the second time in just over two months. Analysts polled by
Reuters expect it to raise rates twice more in the first half of
 Inflation raced to a 28-month high of 5.1 percent in
 The intensification of policy tightening also reflects the
government's confidence that the world's second-largest economy
is fundamentally in good shape.
 Other highlights from the HSBC/Markit survey included:
 -- The slowdown in new order growth was insufficient to
prevent a further rise in backlogs of work, which in turn
prompted firms to hire additional staff, Markit said.
 -- It also noted that new export orders expanded at a much
slower rate than overall new orders, showing that overall
manufacturing growth was driven mainly by domestic demand.
 -- Firms reported higher energy and fuel prices in December.
 -- The output component of the PMI eased to the slowest in
three months, but the pace of expansion was still steep and only
slightly slower than the rates recorded in the first quarter of
 -- Inventories of finished goods in the manufacturing sector
fell again in December, extending the current period of
contraction to five month.
 (Reporting by Kevin Yao; Editing by Simon Rabinovitch)

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