China manufacturing slows in power, credit squeeze

[June 01, 2011]  SHANGHAI (AP) -- China's manufacturers suffered sluggish growth in orders in May as widespread power shortages and inflation-fighting curbs on credit dampened demand, surveys showed Wednesday.

The China Federation of Logistics and Purchasing said its purchasing managers index fell to 52 from 52.9 in April and 53.4 in March. The index has remained above 50, the benchmark for expansion, for 26 straight months.

Economists say the manufacturing trends reflect a moderation rather than a so-called hard landing.

London-based HSBC said its survey of 400 companies, which is adjusted for seasonal factors, showed manufacturers adding workers despite relatively slower output and new orders in May. Its index edged to a 10-month low of 51.6 in May, down from 51.8 in April.

"This is still just a moderation rather than a meltdown in growth, so there is no need to worry about over-tightening," said Hongbin Qu, co-head of Asian Economic Research at HSBC.

After months of forecasting that inflation would moderate by midyear, China is expected to announce a rebound in inflation in May in its monthly data release later this month, partly due to surging food costs associated with a severe drought that has damaged crops across much of the central part of the country.

Many inside China expect authorities to raise key interest rates sometime soon, in a fifth hike since October, to counter surging costs. It has repeatedly ordered state-owned banks to boost their reserves, aiming to curb excess credit.

HSBC said manufacturers cited rising raw materials prices as a key driver of inflation, which was at 5.3 percent in April, moderating from a 32-month high of 5.4 percent in March. State media are forecasting it may rebound to at least 5.5 percent in May.

The survey by the Federation of Logistics and Purchasing, however, noted a drop in prices for raw materials.

It said chronic power shortages, worsened by the drought, pulled industrial output growth down to 50 in May in central China, while growth surged in western China. Energy intensive paper, metals and nonmetallic mineral producers saw sharp drops of 5 percentage points or more.

"Businesses face not only financial pressures and rising prices, but also problems with supplies of water, coal, electricity, oil, transport and key raw materials," it said in a statement on its website.

[Associated Press; By ELAINE KURTENBACH]

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