July 1 (Bloomberg) -- China's manufacturing expanded in June at the slowest pace in almost three years as growth in export orders weakened for the third month, a survey of purchasing managers showed.

The Purchasing Managers' Index fell to 52 from 53.3 in May, the China Federation of Logistics and Purchasing said today in an e-mailed statement. That's the lowest since August 2005.

A global economic slowdown triggered by the U.S. housing slump may be exacerbated by increased borrowing costs as central banks tackle rising inflation. China's growth will drop below 10 percent this year for the first time since 2002, the World Bank forecasts.

``Manufacturing growth will continue to weaken, in line with the economy as a whole,'' said Sun Mingchun, an economist with Lehman Brothers Holdings Inc. in Hong Kong.

The index of new export orders declined to 50.2 from 53.4. A reading above 50 reflects an expansion, below 50 a contraction.

Those for new orders and output also fell, while the input- price index climbed to a record, underscoring the threat to manufacturing from higher costs for labor and raw materials.

In the first five months, 2,331 shoemakers closed in Guangdong province, the world's largest footwear production center, because of rising wages and gains by the yuan that ate into export profits, the customs bureau said yesterday.

World Growth

Overseas shipments climbed 22.9 percent in the first five months of this year, less than the 25.7 percent gain for all of 2007, on weaker U.S. demand.

World economic growth will falter by year's end as faster inflation and higher borrowing costs leave people with less money to spend, central bankers said at a meeting of the Bank for International Settlements in Basel, Switzerland, this week.

``There's no reason for optimism about export growth in the second half,'' Li Ruoyu, an analyst with the State Information Center, a government research institute, said today.

The World Bank estimates China's economy will expand 9.8 percent in 2008, down from 11.9 percent in 2007 and 10.6 percent in the first quarter.

Rising oil and coal costs helped to halve industrial companies' profit growth in the first five months and fuel shortages have also been a drag on manufacturing.

Fuel Rationing

China raised state-controlled retail fuel prices on June 20 to help oil processors cut losses and encourage them to increase supplies after soaring oil prices led to refinery closures and rationing in some regions.

A second PMI survey for June, released today by CLSA Asia- Pacific Markets, also reported rising prices and a weaker expansion of manufacturing. It differed in showing an increase in its index for new export orders. The two studies use different methodologies.

Started in 2005, the logistics federation's PMI rose to a record 59.2 in April.

It's based on a survey of more than 700 companies in 20 industries, including energy, metallurgy, textile, automobile and electronics.

The input-price index rose to 75.7 in June from 73.9 in May. The index of new orders dropped to 52.6 from 55.4. The output index declined to 54.2 from 55.7.

The PMI also tracks changes in employment, inventories and output prices. The data is seasonally adjusted. The logistics federation jointly releases the figures with the National Bureau of Statistics.

To contact the reporter for this story: Zhang Dingmin in Beijing at Dzhang14@bloomberg.net

Last Updated: July 1, 2008 00:13 EDT