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China's manufacturing at 11-month low

Jun 23 2011 09:14 AFP

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Beijing - Growth in China's manufacturing activity fell to an 11-month low in June, preliminary HSBC data released on Thursday showed, as Beijing's efforts to cool the red-hot economy continued to bite.

HSBC's preliminary purchasing managers index fell to 50.1 in June from a final reading of 51.6 in May, the British banking giant said, showing the sector barely grew as authorities tightened restrictions on bank lending.

A reading above 50 indicates the sector is expanding while a reading below 50 indicates contraction.

"Demand is cooling thanks to the effect of tightening measures and the slackness in external markets," HSBC chief economist Qu Hongbin said in a statement.

"But hard-landing worries are unwarranted not least because the current PMI is at a level consistent with around 13% growth in industrial production."

HSBC predicted inflation would ease on falling raw material prices - good news for Beijing as it battles to contain soaring consumer costs.

The final PMI reading will be released next week.

Authorities are increasingly anxious about inflation, which hit a near three-year high of 5.5% in May, and have been trying to stem a flood of credit into the economy by restricting lending and hiking interest rates.

Despite growing signs the economy is slowing, analysts expect inflation to accelerate this month and authorities are tipped to raise rates for the fifth time since October in the coming weeks.

The state-run China Securities Journal on Thursday called on authorities to raise rates as soon as possible, saying the country's negative real interest rate has resulted in money flowing out of the banking system.

This has made the central bank's efforts to restrict lending by raising the bank reserve requirement ratio less effective, it said.

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