China Watch Blog has learnt that China’s manufacturing production fell to a 28-month low in June, indicating a sizeable slowdown in economic growth against a recent background of soaring inflation.
However, the inflationary pressure is likely to ease in the second half of the year, with both manufacturing input and output prices showing a slower rate of increase, according to a statement on the website of the China Federation of Logistics and Purchasing (CFLP).
Toy factory worker
The country’s final official Purchasing Managers’ Index (PMI), an indicator of manufacturing activity, declined to 50.9 in June from 52 in May, signaling a slower growth rate for the world’s second-largest economy. The index was jointly released by the CFLP and the National Bureau of Statistics (NBS).
The June figure follows readings of 52.9 in April and 53.4 in March. A reading above 50 means an expansion in manufacturing activity, while one below 50 indicates a contraction.
A heated debate is emerging in Beijing about whether the current monetary policy is overly tight and damaging to the economy.
At a forum last weekend, Professor Li Yining of Peking University argued that stagflation is likely to develop if monetary policy is further tightened.
Qu Hongbin, chief economist for China and co-head of Asian Economic Research at HSBC Holdings PLC, said that “the slowdown implies that policy tightening is working, pointing to a peak in inflation in the coming months”.
The final June PMI reading confirmed that both manufacturing activity and inflation are slowing, he said. HSBC had released a lower preliminary PMI figure of 50.1 about a week ago.
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