China Manufacturing Slows Again Amid Growth Concern

China’s manufacturing growth slowed more than economists forecast in June, adding to signs that the world’s fastest-growing major economy is cooling.

The government’s Purchasing Managers’ Index declined for a second month, falling to 52.1 from 53.9 in May. The median forecast in a Bloomberg News survey of 12 economists was 53.2. An HSBC Holdings Plc manufacturing index slid to a 14-month low.

Asian stocks fell for a third day as the reports added to concern that a Chinese slowdown combined with austerity measures in Europe may undermine the global recovery. Zhang Liqun, a researcher for the Chinese cabinet, said the data indicates a “steady moderation” to a more sustainable pace of growth after an 11.9 percent expansion in the first quarter.

“It’s just a slowdown not a meltdown,” said Qu Hongbin, a Hong Kong-based economist at HSBC. Today’s numbers are “more evidence of a slowing Chinese economy from a cyclical peak in the first quarter,” Qu said.

He sees growth of about 9 percent in the second half, underpinned by “massive ongoing investment” and “robust” private consumption.

The MSCI Asia Pacific Index dropped 1.6 percent as of 11:59 a.m. in Hong Kong. The Shanghai Composite Index swung between gains and losses after sliding to a 14-month low yesterday.

‘Uneven and Fragile’

Goldman Sachs Group Inc. said half of the decline in the government index may be seasonal, with the June PMI tending to be lower than May readings.

Signs of a slowdown as the Chinese government clamps down on property speculation and the effects of its stimulus package fade have unsettled investors. Limited demand in advanced economies has left the world reliant on emerging markets, led by China, to drive a recovery that Group of 20 leaders this week described as “uneven and fragile.”

In China, tempering the expansion may aid government efforts to limit price pressures even after wage rises for Honda Motor Co. and Foxconn Technology Group workers. In the government data, a measure of input prices decreased to 51.3 in June from 58.9 in May, the biggest fall in the 11 sub-indexes, as demand weakened and the costs of some commodities fell.

An output index fell to 55.8 from 58.2, the Federation of Logistics and Purchasing said in an e-mailed statement. A measure of new orders slid to 52.1 from 54.8 and an export-order index dropped to 51.7 from 53.8.

Export Weakness

The PMI, released by the logistics federation and the Beijing-based National Bureau of Statistics, covers more than 730 companies in 20 industries, including energy, metallurgy, textiles, automobiles and electronics.

Economic growth is moderating, a rebound in exports is weakening, and slower domestic demand is leading to a build-up of finished-goods inventories, the federation said in a separate statement on its website. Industrial production is entering a “light season” and the output of heavy energy users such as metal and oil processers contracted last month, it said.

HSBC’s survey, released with Markit Economics, covers more than 400 manufacturing companies and is weighted more toward smaller, privately owned business than the government’s PMI, according to the bank. The HSBC measure declined to 50.4 from 52.7 in May. Output contracted for the first time in 15 months, according to this survey.

On June 29, the New York-based Conference Board corrected its leading economic index for China to show the smallest gain in five months in April.

Baosteel Target

Baosteel Group Corp., China’s second-biggest steelmaker, this week scaled back its growth plans, cutting its target for capacity in 2012 by 38 percent and forecasting a “bumpy, unpredictable and long” global recovery.

In China, policy makers have spent the first half of the year seeking to prevent property-price bubbles and contain inflation, which surpassed the government’s full-year target of 3 percent in May. So far, the winding back of stimulus has not included an interest-rate increase.

The government has told banks to set aside more money as reserves, targeted a 22 percent reduction in new lending from the record $1.4 trillion in 2009, and indicated that the yuan’s peg to the dollar is over.

China’s economy will slow over the second half of this year, which is welcome news “given the slight uptick in inflation recently,” Stephen Roach, Morgan Stanley’s Asia chairman, said in Beijing yesterday. A pace of 8 percent or 9 percent would be “much more sustainable than the overheated growth rate in the first quarter,” he said.

Damping Sentiment

A statistics bureau commentary on today’s government data said small companies’ output contracted for a second month and their new orders declined “sharply.” It also said that businesses have become more cautious about buying raw materials such as metals, timber and items for machinery manufacturing.

China’s export outlook is “grim” as shipments may be hurt by a slowing world recovery, rising trade frictions, Europe’s sovereign debt crisis and cuts to export tax rebates, the bureau said. Separately, the logistics federation said a more flexible yuan may affect exports.

Today’s data may indicate a “steady moderation” to a more stable and sustainable expansion,” Zhang, a researcher at the State Council’s Development and Research Center, said in the government’s PMI statement. “China’s growth is at a critical stage of turning from recovery to stabilizing.”

Property Crackdown

Measures cooling the economy include a government crackdown on property speculation that has included raising down-payment ratios and mortgage rates for multiple home buyers. Clamping down on local-government borrowing to contain risks from last year’s explosion in debt could also limit growth.

Efforts to limit energy consumption and pollution, such as scrapping export rebates on some steel and metal products from July 15, may also be a drag on growth.

“The biggest uncertainty in the outlook later this year may be how determined the government is in meeting its energy and pollution targets and in limiting related industries,” according to Lu Zhengwei, a Shanghai-based economist at Industrial Bank Co.

--Li Yanping. With assistance from Jay Wang in Singapore and Stephen Engle in Beijing. Editors: Paul Panckhurst, Russell Ward.

To contact Bloomberg News staff for this story: Li Yanping in Beijing at +86-10-6649-7568 or yli16@bloomberg.net

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