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Manufacturing continues to slow

(Shanghai Daily)

09:50, October 01, 2011

Shanghai--China's manufacturing contracted for a third month in September, extending the losing streak to the longest since 2009 as export demand declined, the HSBC Purchasing Managers' Index showed yesterday.

Standing at 49.9, the index was unchanged from August, but it made September the third consecutive month that the index has been below 50, a reading that indicates contraction.

"The final PMI for September still stays below 50, but it shows some signs of stabilizing," said Qu Hongbin, chief economist for China at HSBC. "This implies that although the lagged effects of credit tightening will continue to cool industrial activities, there is little need to worry about a sharp slowdown."

The HSBC Flash PMI for September, a harbinger of the final reading and released a week earlier, was 49.4, indicating a deeper pessimism at that time.

The key drag on the vitality of China's manufacturing remains shrinking external demand. "The component index gauging demand conditions grew at the slowest pace in 14 months, and a reduction in foreign order levels was recorded, linked to sluggish demand from external clients," the survey said.

However, Qu said fewer orders from foreign countries wouldn't shake the foundations of China's economy, which has become less dependent on exports. In the first half, exports contributed nearly zero to the growth of China, he said.

Also, China is unlikely to launch more tightening measures as the growth rate has shown signs of slowing down. Qu estimated China's gross domestic product would grow by 8.5 percent to 9 percent this year, and stay at that level in the next few years.

China's GDP expanded 9.5 percent in the second quarter, easing from 9.7 percent in the first three months and last year's 10.4 percent.

But rebounding input prices remained a worry, Qu said. The survey showed average input costs rose sharply in September.

The official Purchasing Managers' Index, compiled by the China Federation of Logistics and Purchasing, will be released today.

The HSBC survey is slanted towards privately owned and export-oriented firms.

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