Beijing - Manufacturing activity in China fell to a three-month low in December but soaring raw material costs continued to fan inflationary pressures in the economy, an independent survey said on Thursday.
The HSBC China Manufacturing purchasing managers' index (PMI), slipped to 54.4 in December from 55.3 in November as output and new business increased at the slowest pace in three months, the British banking giant said.
But manufacturing activity in the fourth quarter, as a whole, was the strongest since the first three months of the year, it said.
A reading above 50 indicates the sector is expanding while a reading below 50 means it is contracting.
Average input prices rose for the fifth straight month, albeit at the slowest pace in three months, driven mainly by soaring raw material, energy and fuel costs, the survey showed.
Purchasing managers said their factories were passing on the higher costs to customers by hiking factory-gate prices for products, highlighting the need for further monetary tightening measures, HSBC chief economist Qu Hongbin said.
"Inflation rather than growth still remains as the top policy concern, despite the moderation in December's manufacturing PMI reading," Qu said in a note.
"We expect Beijing to continue relying on quantitative tightening measures to curb inflation... while modest interest rate hikes are also needed to anchor inflation expectations in the coming months."
The expansion of manufacturing activity this month was fuelled by domestic demand, with only a "modest" expansion in new export orders, the bank said.
HSBC's results are based on interviews with purchasing managers at more than 400 companies.
The results of a government survey of more than 700 firms is expected to be released on Saturday.