China May official PMI hits 9-mth low on credit curbs

BEIJING, June 1 (Reuters) – China’s official purchasing managers’ index hit a nine-month low in May, a survey showed on Wednesday, reinforcing evidence that economic growth is slowing under the weight of government credit curbs and power shortages.

The PMI, which is designed to provide a snapshot of conditions in China’s vast manufacturing sector, fell to 52 from 52.9 in April, the China Federation of Logistics and Purchasing said.

The federation compiles the index on behalf of the National Bureau of Statistics.

“The continued fall in PMI in May, after a drop in April, shows the rising possibility of a slowdown in economic growth,” Zhang Liqun, a government researcher, said in a statement accompanying the data release.

“The input price sub-index saw significant decline, indicating a possible change in inflationary expectations. Destocking activities may increase. All these will drive down the pace of economic growth,” he said.

The reading was slightly weaker than market expectations of 52.2 in a Reuters poll.

Despite Beijing’s sustained tightening campaign over the past half year to control price rises, which has included hikes in banks’ required reserves and interest rates, most economists believe the economy is retaining much of its momentum.

May was the 27th straight month that the official PMI stood above the threshold of 50 demarcating expansion from contraction.

The input prices sub-index, a measure of how much factories pay for raw materials and intermediary goods, eased to 60.3 in May, a 10-month low.

But easing factory prices may take some time to trickle down to consumer inflation, which is widely expected to quicken in May from 5.3 percent in April.

With inflation running at its fastest in nearly three years, analysts expect the government to press ahead with policy tightening in the coming months.

The new orders sub-index weakened to 52.1 in May from 53.8 in April. Much of the drop was driven by slower growth in export orders, whose sub-index dipped to 51.1 from 51.3 in April.