Mfg. industry inventory index breaks 50% for first time since 2009

15:47, July 02, 2010      

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The China Federation of Logistics and Purchasing (CFLP) published the manufacturing purchasing managers' index (PMI) for June on July 1. The index shows that the inventory index of the manufacturing industry in June stood at more than 51 percent, up 1.5 percentage points from last month.

This is the first time the manufacturing industry's inventory index has broken through the critical point in over two years. This is a highly-important index reflecting economic conditions. Once inventory reaches over 50 percent, it indicates that demand in the entire market has declined and economic slowdown is significant.

Between September and November in 2008, the entire manufacturing inventory index was constantly over 50 percent. At that time, the economy suddenly became worse and in the first quarter of 2009, the economic growth rate fell to nearly 6 percent, reaching the minimum. The economy had hit bottom and deflation was significantly aggravated.

However, Yu Ying, director of the Secretariat of China's PMI Analysis Team and general manager of CLII, which carried out the PMI survey for CFLP, denied the possibility that the economy would hit bottom for a second time.

In 2008, rapidly increasing inventory was accompanied by a drastic decline in manufacturing orders, while the current order conditions seem to be favorable. Therefore, the increase in inventory this time shows that the economy is shifting from a phase of rapid growth to a more stable period. The number of new orders in June is more than 52 percent, down 2.7 percentage points from last month, but it is still on the rise.

Of the 20 industries included in the index, the number of new orders of 10 industries, led by the steel and beverage industries, is over 50 percent, with two reaching above 60 percent. The other 10 industries, including the automobile (transport equipment manufacturing industry), chemical materials and chemical products manufacturing industries, have an order amount less than 50 percent. In terms of the types of products, new orders for raw materials and energy as well as the consumer goods enterprises are higher than 50 percent.

Zhang Liqun, an analyst at the Development Research Center of the State Council, said the consecutive decline in the manufacturing industry index in May and June may indicate that China's economic growth rate will show a smooth rising trend, which will play an active role in enhancing the stability and sustainability of economic growth. The decrease in new orders may indicate a rising trend in the export growth rate.

By People's Daily Online


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