Fwd: China Manufacturing Grows at Slower Pace, PMI Shows (Update2)

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China Manufacturing Grows at Slower Pace, PMI Shows (Update2)
2010-12-30 04:17:13.596 GMT

(Adds economist's comment in fourth paragraph.)

By Bloomberg News
Dec. 30 (Bloomberg) -- China's manufacturing growth
slowed for the first time in five months in December as the
government tightened monetary policy and chased energy-
efficiency and pollution targets, a survey indicated.
A purchasing managers' index released today by HSBC
Holdings Plc and Markit Economics fell to 54.4 from 55.3 in
November. The data are seasonally adjusted and a reading
above 50 indicates an expansion.
Rising corporate profits and expansions by companies
including Aluminum Corp of China Ltd. and Volkswagen AG may
help to sustain manufacturing as the government curbs lending
to counter inflation. Morgan Stanley and JPMorgan Chase & Co.
forecast interest rates will rise at least twice in the first
half of 2011 after an increase on Christmas Day that was the
second since the global financial crisis.
"Inflation rather than growth still remains as the top
policy concern, despite the moderation in December's
manufacturing PMI reading," said Qu Hongbin, Hong Kong-based
China economist for HSBC. "Modest" interest-rate increases
are needed to anchor inflation expectations in coming months,
Qu said.
The Shanghai Composite Index fell 0.4 percent as of the
11:30 a.m. local time break in trading. The yuan touched
6.6142 per dollar, the strongest since 1993.

Switch From Contraction

While today's PMI reading was the weakest in three
months, it compares with a contraction as recently as July.
For the fourth quarter as a whole, the index had the
strongest performance since the first three months of this
year, HSBC said in a statement.
The measure is based on a survey of executives at more
than 430 companies and gives an indication of activity in the
manufacturing sector. A separate government-backed PMI is due
Jan. 1.
Higher interest rates, a crackdown on real-estate
speculation, and closures of energy-wasting and highly
polluting factories are among measures by Premier Wen
Jiabao's government that may cool growth. Officials have also
boosted reserve requirements for lenders six times this year
to counter inflation and limit asset bubbles in the real-
estate market.

Export Orders

New export orders rose "only modestly," indicating
that growth centered on the domestic market, the bank said,
without giving numbers.
The report contained some encouraging signs for policy
makers, with input and output costs rising at a slower pace
and job creation quickening to the fastest since June, HSBC
said. Still, the inflation measures remain elevated, the bank
Today's data "suggests industrial production momentum
is still strong, though sentiment may have been weakened a
bit by recent tightening measures and companies' lingering
concern over how such tightening is going to play out," said
Li Wei, Shanghai-based economist with Standard Chartered Bank.
Industrial companies' profits climbed 49 percent in the
first 11 months of 2010 to 3.88 trillion yuan ($585 billion),
according to a Dec. 27 government report.
The economy grew 9.6 percent in the third quarter from a
year earlier. Consumer prices climbed 5.1 percent in November
from a year earlier, the most in 28 months, and producer
prices gained 6.1 percent.

Inflation Fight

Peng Sen, vice chairman of the National Development and
Reform Commission, said the nation must prepare for a long-
term fight against inflation, according to a Dec. 21 report
on state television.
Companies in China, the world's biggest maker of steel,
cement and mobile phones, are expanding after exports topped
pre-crisis levels. The momentum of economic growth is
"consolidating," the central bank said Dec. 27.
Aluminum Corp. of China, or Chalco, will build a 17.5
billion yuan base that includes alumina and aluminum smelting
plants and a bauxite mine in the southwestern Guizhou
province, according to a statement in the government-run
People's Daily newspaper.
German carmaker VW's two joint ventures in China will
spend 10.6 billion euros ($14 billion) in the world's biggest
auto market through 2015, adding two factories to help double
production to 3 million cars a year, the company said last

For Related News and Information:
Most-read stories on China: MNI CHINA <GO>
Top stories on China: TOPN <GO>
Top stories on Economy: TECO <GO>
Stories on China's economy: TNI CHINA ECO <GO>
China's economic-data watch indexes: ESNP CH <GO>

--Zheng Lifei. With assistance from Sophie Leung in Hong Kong
and Li Yanping in Beijing. Editors: Paul Panckhurst, Ken

To contact Bloomberg News staff for this story:
Zheng Lifei in Beijing at +86-10-6649-7560
or lzheng32@bloomberg.net

To contact the editor responsible for this story:
Chris Anstey at +81-3-3201-7553 or