China’s manufacturing growth slowed for the first time in five months in December as the government tightened monetary policy and chased energy- efficiency and pollution targets, a survey indicated.
A purchasing managers’ index released today by HSBC Holdings Plc and Markit Economics fell to 54.4 from 55.3 in November. The data are seasonally adjusted and a reading above 50 indicates an expansion.
Rising corporate profits and expansions by companies including Aluminum Corp of China Ltd. and Volkswagen AG may help to sustain manufacturing as the government curbs lending to counter inflation.
Morgan Stanley and JPMorgan Chase & Co. forecast interest rates will rise at least twice in the first half of 2011 after an increase on Christmas Day that was the second since the global financial crisis.
“Inflation rather than growth still remains as the top policy concern, despite the moderation in December’s manufacturing PMI reading,” said Qu Hongbin, Hong Kong-based China economist for HSBC. “Modest” interest-rate increases are needed to anchor inflation expectations in coming months, Qu said.
The Shanghai Composite Index fell 0.4 percent as of the 11:30 a.m. local time break in trading. The yuan touched 6.6142 per dollar, the strongest since 1993.
Switch From Contraction
While today’s PMI reading was the weakest in three months, it compares with a contraction as recently as July. For the fourth quarter as a whole, the index had the strongest performance since the first three months of this year, HSBC said in a statement.
The measure is based on a survey of executives at more than 430 companies and gives an indication of activity in the manufacturing sector. A separate government-backed PMI is due Jan. 1.
Higher interest rates, a crackdown on real-estate speculation, and closures of energy-wasting and highly polluting factories are among measures by Premier Wen Jiabao’s government that may cool growth. Officials have also boosted reserve requirements for lenders six times this year to counter inflation and limit asset bubbles in the real- estate market.
Export Orders
New export orders rose “only modestly,” indicating that growth centered on the domestic market, the bank said, without giving numbers.
The report contained some encouraging signs for policy makers, with input and output costs rising at a slower pace and job creation quickening to the fastest since June, HSBC said. Still, the inflation measures remain elevated, the bank said.
Today’s data “suggests industrial production momentum is still strong, though sentiment may have been weakened a bit by recent tightening measures and companies’ lingering concern over how such tightening is going to play out,” said Li Wei, Shanghai-based economist with Standard Chartered Bank.
Industrial companies’ profits climbed 49 percent in the first 11 months of 2010 to 3.88 trillion yuan ($585 billion), according to a Dec. 27 government report.
The economy grew 9.6 percent in the third quarter from a year earlier. Consumer prices climbed 5.1 percent in November from a year earlier, the most in 28 months, and producer prices gained 6.1 percent.
Inflation Fight
Peng Sen, vice chairman of the National Development and Reform Commission, said the nation must prepare for a long- term fight against inflation, according to a Dec. 21 report on state television.
Companies in China, the world’s biggest maker of steel, cement and mobile phones, are expanding after exports topped pre-crisis levels. The momentum of economic growth is “consolidating,” the central bank said Dec. 27.
Aluminum Corp. of China, or Chalco, will build a 17.5 billion yuan base that includes alumina and aluminum smelting plants and a bauxite mine in the southwestern Guizhou province, according to a statement in the government-run People’s Daily newspaper.
German carmaker VW’s two joint ventures in China will spend 10.6 billion euros ($14 billion) in the world’s biggest auto market through 2015, adding two factories to help double production to 3 million cars a year, the company said last month.
--Zheng Lifei. With assistance from Sophie Leung in Hong Kong and Li Yanping in Beijing. Editors: Paul Panckhurst, Ken McCallum
To contact Bloomberg News staff for this story: Zheng Lifei in Beijing at +86-10-6649-7560 or lzheng32@bloomberg.net
To contact the editor responsible for this story: Chris Anstey at canstey@bloomberg.net
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