Tighter policies slow China manufacturing

18-01-2011

China's manufacturing growth slowed for the first time in five months in December as Premier Wen Jiabao's government tightened monetary policy and chased energy-efficiency and pollution targets.

The Purchasing Managers' Index fell to 53.9 from 55.2 in November, according to the China Federation of Logistics and Purchasing.

A measure of manufacturers' input costs also fell.

Wen is seeking to choke off the fastest inflation in more than two years and limit asset bubbles without undermining growth in the economy that led the recovery from the global financial crisis.

Governor Zhou Xiaochuan has pledged to try to keep prices "basically stable" this year, after the central bank raised interest rates on Christmas Day for the second time since mid-October.

"It's good to reduce inflation pressures," said Ken Peng, a Beijing-based economist at Citigroup.

"I do not see much risk of a sharp economic slowdown."

While the reading was the weakest of the fourth quarter, it was higher than in the months of June through September. Besides raising rates, the central bank increased the proportion of deposits that lenders must set aside as reserves six times last year and allowed the yuan to gain 3.6 per cent against the dollar.

China’s currency, the yuan, continues to strengthen against major global currencies, fuelling speculation that officials will allow more gains to counter inflation.

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.

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