Manufacturing in China slows in line with goal of restructuring

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Growth of manufacturing in China slowed to a 29-month low in July amid the country's monetary tightening, and it is in line with the country's goal of restructuring, experts said.

The Purchasing Managers' Index, a gauge of manufacturing expansion, stood at 50.7 percent for July compared with 50.9 in June, the China Federation of Logistics and Purchasing (CFLP) said Monday.

The figure beat market estimates. An HSBC's preliminary survey of manufacturers forecast the index would fall to 48.9, which would mark the first contraction in manufacturing activity since July 2010.p "The PMI has fallen for four consecutive months, indicating China's economy is still adjusting itself. Based on the economic growth rate changes, economic growth is slowing down steadily, which is in line with the goal of restructuring," said Zhang Liqun, a researcher with the Development Research Center of the State Council.

The gauge is based on a survey of purchasing managers in more than 820 companies in 20 industries. A reading below 50 indicates contraction from the previous month, while a reading above 50 indicates expansion.

The PMI is falling, but its decline rate is shrinking and some sub-indices showed positive changes in the economic growth, said Cai Jin, deputy chairman of CFLP.

The new orders index, a sub-index reflecting domestic demand, rose 0.3 percentage points from June to 51.1 in July. The stocks of goods index, a measure of the finished goods inventory, fell 1.8 percentage points to 49.2.

"Though the new orders index is not picking up a great deal, it suggests the demand is stable amid the country's slowing economic growth, which will push up the manufacturers' purchase in the future," Cai said.

The employment index, which had fallen the past few months, rebounded in July. "This indicates the quality of our economic growth is improving," Cai added.

The economy is going strong with the primary drive coming from downstream demand, said He Yifeng, a senior analyst at Hongyuan Securities.

In July, China's industrial added value growth may slow down as well but will regain momentum in August, He said.

Manufacturing in China usually slows during summer. From 2005 to 2010, the monthly drop in summer was about 2.5 percent on average, according to Chang Jian, an economist at Barclays Capital.

Economists also noted that the PMI reading for small-and-medium-sized enterprises (SME) was 46.4 percent in July, the third time this year below the boom-or-bust line of 50, which posts a gloomy outlook for SME development.

The difficulties facing small businesses are soaring costs, tightened financing, fewer market opportunities and limited ability to resist risks, Cai said.

The slowdown in manufacturing activities came at a time when the country continued tightened liquidity to rein in inflation and the world was worried about a possible U.S. debt default that could trigger another round of financial crisis.

In June, China's consumer prices climbed to a three-year high of 6.4 percent, with producer prices rising 7.1 percent, well above the government's target ceiling of 4 percent for the year.

The central government has declared curbing soaring prices its top priority this year and hiked interest rates five times since October 2010 to cool the economy.

U.S. President Barack Obama announced Sunday night that he has reached a last-minute deal to raise the U.S. debt ceiling with Republican and Democratic leaders to stave off a looming debt default crisis.

China held nearly 1.16 trillion U.S. dollars in U.S. government debt by the end of May.

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