Chinese economy appears to be slowing

The data reinforced evidence that the world’s second-biggest economy is slowing gently, but analysts said the easing was far from a crash landing and predicted China’s growth engine would expand at least nine percent this year.

Still, many economists noted that Beijing is treading an increasingly fine balance between fostering growth and fighting inflation, especially as its monetary policy tightening campaign goes into its tenth month.

“The economy has slowed,” said Stephen Green,, an economist at Standard Chartered. “I think it reduces the chance of any more (policy )tightening.”

The official purchasing managers’ index (PMI), which previews business conditions in factories before official monthly output data, dipped to 50.7 in July from June’s 50.9, but still showed expansion and beat market forecasts for 50.1.

In a sign that the resilient domestic economy was picking up some of the slack from softer global demand, the official PMI showed new orders edged up to 51.1, from June’s 50.8. In contrast, new export orders dipped to 50.4 from 50.5 in June.

Data showed output falling and factory inflation easing to its lowest since August 2010.

A separate survey conducted for HSBC, which is skewed more toward smaller companies, found manufacturing activity shrank slightly for the first time in a year.

Tao Wang, an economist at UBS, noted that after seasonal adjustments, the official PMI suggested the trend was slightly more upbeat with factory activity rebounding from June.

Yet even then, she thought Beijing was unlikely to tighten policy further for now.

“Growth is slowing gradually and the government will keep policy unchanged,” Ms Wang said. “I don’t think they will loosen policy, but I don’t think they will tighten for now either.”

With the United States and Europe hampered by debt problems, investors are more sensitive than ever to any wobble in China’s economy, one of the few bastions of fast growth in the world.

The US economy stumbled badly in the first half of the year and came close to shrinking in the first quarter, data issued on Friday showed.

The official PMI reading contrasted with a HSBC China PMI series that showed the index falling to 49.3 in July from June’s 51.6. The output sub-index fell to its lowest since March 2009 of around 48, from June’s 49.8.

In PMI releases around the world, the 50-point level typically demarcates expansion from contraction.

But HSBC has made it clear that in China, while a reading below 50 signals contraction on the month, it still points to solid growth of between 11-13 per cent on the year in factory output.