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Manufacturing activity weakens

By Chen Yang (Global Times)

08:00, July 02, 2012

China's manufacturing activity fell to a seven-month low in June, official figures showed Sunday, indicating the world's second largest economy is still facing downward pressure.

The official Purchasing Managers Index (PMI), a gauge of the country's manufacturing activity, slipped to 50.2 in June from 50.4 in May, the China Federation of Logistics and Purchasing (CFLP) said in a statement on its website.

The June figure marked the lowest PMI reading since November 2011. A PMI reading above 50 indicates expansion, while a reading below 50 means contraction.

"The PMI's moderation in June was driven partly by seasonal factors," said Cai Jin, president of the CFLP, noting that similar slowdowns have occurred in June in previous years.

The input price sub-index dropped sharply to 41.2 in June, down 3.6 points from May, which might bring the risk of deflation, the statement said.

"China's economy is still facing downward pressure. The fall of input price sub-index suggests demand has not improved, creating destocking pressures for Chinese manufacturers," Lian Ping, chief economist at the Bank of Communications, told the Global Times.

"However, the PMI has declined by a narrower range, indicating the growth slowdown may stabilize," he said.

Compared with the 2.9 point month-on-month slide in May, the PMI saw only a 0.2 point drop in June.

"With government efforts to approve new projects and boost domestic consumption, we believe that the PMI has bottomed out and is likely to rebound a little in the third quarter," Lian said.

The official PMI reading was in line with a preliminary PMI figure released by HSBC last month.

The HSBC flash China manufacturing PMI, which gives more weighting to small- and medium-sized enterprises (SMEs), fell to 48.1 in June compared with a final reading of 48.4 in May, the eighth consecutive month of contraction.

"SMEs are facing a more severe situation than big companies in terms of getting new orders and financing. Meanwhile, policies to reduce tax burdens for SMEs have not been fully implemented," Chen Naixing, head of the SME Research Center of the Chinese Academy of Social Sciences, told the Global Times.

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