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Industrial activity on downward path again

(Shanghai Daily)

08:33, September 23, 2011

China's manufacturing activities may shrink again in September due to weakening external demand, leading to the longest contraction since 2009, according to a preliminary reading for the HSBC Purchasing Managers' Index yesterday.

The HSBC Flash PMI, the earliest available indicator of the industrial sector's operating conditions, settled at 49.4 in September, down from the final HSBC PMI of 49.9 in August.

A reading below 50 indicates contraction, and September may now become the third consecutive month the index has fallen bellow 50.

"This is a similar moderating growth picture as in the previous two months," said Qu Hongbin, chief economist for China at HSBC. "External demand weakened a little but official trade data still show solid export growth."

Qu said China has become less dependent on net exports, whose contribution to the economy was close to zero in the first half of the year. "Resilient domestic demand is sufficient to support around 8.5 to 9 percent economic growth in the coming quarters, so fears of a hard landing are unwarranted," Qu said.

In contrast to Qu's optimism, a number of international institutions have downgraded their projections for China's economic outlook. On Tuesday, the International Monetary Fund lowered their estimate of China's gross domestic product growth this year to 9.5 percent from 9.6 percent. Earlier, the Asian Development Bank cut its China forecast for this year to 9.3 percent from 9.6 percent, citing weak global demand.

Other factors, including a still prudent monetary policy stance because of high inflation, and lukewarm growth in domestic consumption, also contributed to a less optimistic view.

However, the nation's manufacturing activities exhibited unexpected improvement last month with the HSBC PMI rebounding from July's 49.3 to August's 49.9. The improvement was thanks to a stabilizing economy and prospects of no more tightening measures.

The official Purchasing Managers' Index, compiled by the China Federation of Logistics and Purchasing, also rose to 50.9 in August from July's 50.7, giving hope of better manufacturing performance.

"The September data may become a damper on that," said Li Maoyu, an analyst at Changjiang Securities Co. "Weaker manufacturing is likely the mainstream, as the Flash PMI indicated."

The monthly HSBC Flash PMI is published about a week before the final HSBC PMI is released.

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