China’s inflation may cool after manufacturing growth slowed in December because of a tighter monetary policy and the closure of energy-wasting and highly polluting factories.
A purchasing managers’ index fell to 53.9 from 55.2 in November, China’s logistics federation and the statistics bureau said Jan. 1. Manufacturers’ input costs rose at a slower pace, the report showed.
Premier Wen Jiabao is seeking to limit bank lending and inflows of capital that could fuel inflation after a record expansion in credit drove the nation’s recovery. The central bank raised interest rates on Christmas Day and, six days later, the currency regulator said it was expanding a program to let exporters keep revenue overseas.
“A slower but still robust pace of manufacturing expansion is welcome because overheating is a risk policy makers want to avoid,” said Shen Jianguang, a Hong Kong-based economist at Mizuho Securities Asia Ltd. who has worked for the European Central Bank and the International Monetary Fund. “Another rate hike could come as soon as this month.”
Growth slowed for the first time in five months and the reading was less than any of 13 analysts’ estimates in a Bloomberg News survey. Their median forecast was 55.
Inflation Forecasts
December’s annual inflation rate probably fell from November’s 5.1 percent, a 28-month high, according to economists at Bank of America-Merrill Lynch and China International Capital Corp.
CICC estimates consumer prices rose 4.5 percent in December from a year earlier, while Merrill’s forecast is 4.8 percent.
Ken Peng, a Beijing-based economist at Citigroup Inc., said slower manufacturing growth is welcome and may help reduce inflation pressures. He said he doesn’t see “much risk of a sharp economic slowdown.”
The central bank’s two interest-rate increases in the fourth quarter were the first since 2007. Officials also allowed gains by the yuan against the dollar, and raised banks’ reserve ratios by 1.5 percentage points to drain cash from the economy.
The requirement now stands at 18.5 percent for the biggest banks, excluding any additional restrictions on individual lenders not publicly announced.
A program letting qualified Chinese exporters park foreign- currency earnings in overseas accounts was to be expanded nationwide from Jan. 1 after previous trials in regions including Guangdong, the state-run Xinhua News Agency reported on Dec. 31. The businesses can decide how long to keep the money offshore, Xinhua said, citing the State Administration of Foreign Exchange.
Stock Slide
China’s key stock gauge declined 14 percent last year, the worst performer among the world’s 14 biggest benchmark indexes, because of concern that government curbs to counter inflation will crimp growth and profits. The measure jumped 80 percent in 2009 as a 4 trillion-yuan ($610 billion) stimulus package and record lending helped the economy recover.
The government-backed PMI, released by the Beijing-based logistics federation and the National Bureau of Statistics, gives an indication of manufacturing activity by surveying more than 820 companies in 20 industries, including energy, metallurgy, textiles, automobiles and electronics.
An output index fell to 57.5 last month from 58.5 in November and a measure of new orders dropped to 55.4 from 58.3, while an index of new export orders rose to 53.5 from 53.2. An input-price index dropped 6.8 points to 66.7 after surging in November to the highest level since June 2008.
Closing Factories
A separate Dec. 30 report from HSBC Holdings Plc and Markit Economics indicated that manufacturing growth cooled in December and input and output prices rose at a slower pace.
Besides tightening monetary policy, officials have cracked down on real-estate speculation and closed factories to meet energy-efficiency and pollution targets.
The numbers released on Jan. 1 reflect government efforts to limit price gains and adjust the nation’s growth model, the logistics federation said in a statement. Economic momentum remains steady, it said. At the same time, the organization cautioned that inflation is spreading from food to raw materials and energy and may erode the nation’s export competitiveness.
Central bank Governor Zhou Xiaochuan pledged Dec. 31 to try to keep prices “basically stable” this year. Besides consumer price inflation, the government is seeking to limit asset bubbles in the real-estate market.
A survey released by the central bank in December showed consumers more concerned about prices than at any time in the past decade. Food costs climbed 11.7 percent in November from a year earlier, with Starbucks Corp. and McDonald’s Corp. among companies to announce price increases in the past two months.
Price gains may remain elevated in the first half of this year, and especially the first three months, China’s top economic planning agency said last month.
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