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Manufacturing slows as demand for goods falls

By Wang Yanlin (Shanghai Daily)

09:05, November 24, 2011

China's manufacturing activities may weaken sharply and return to contraction this month because of a reduction in demand at home and abroad, a preliminary reading for the HSBC Purchasing Managers' Index showed yesterday.

The HSBC Flash PMI, the earliest available indicator of industrial sector operating conditions, fell to a 32-month low of 48 in November, down from October's final reading of 51. It settled at 49.9 in September.

A reading below 50 means contraction.

"The dipping headline manufacturing PMI implies that industrial production is likely to slow further to around 12 percent year on year in the coming months," said Qu Hongbin, chief economist for China at HSBC. "It is mainly due to cooling domestic demand while external demand is set to weaken despite still resilient new export orders."

Qu said inflation was likely to decelerate faster than expected, leaving more room for China to step up selective easing measures which should filter through to keep China on track for a soft landing.

Kevin Lai, senior economist at Daiwa in Hong Kong, told Reuters the PMI data showed China's industrial production had started to contract on a month-on-month basis.

"We see a 25 percent probability of a hard landing in the first quarter of next year," Lai said, meaning economic growth of less than 8 percent.

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