Saturday, July 2, 2011

Chinese Factory Output Reading Fell to Record Low


Bejing, July, 2: World second largest economy is losing their steam as Chinese factory output reading in June at its record low in 28 months, Chinese economy is facing the pinch of monetary tightening and reduced global demand amid weakness in developed world.

The official purchasing managers' index (PMI), which is structured to give a snapshot of conditions in China's vast manufacturing base, fell to 50.9 in June from 52 in May, the China Federation of Logistics and Purchasing said.     
    
The number was weaker than market expectations of 51.3, based on a Reuters poll. But it was the 28th straight month that the official PMI has stood above the 50 that is critical indicator that demarcates expansion from contraction. The recent data indicating that the future economic growth rate may continue to fall.

However the de-stocking has played important role in the recent slide in the PMI, the de-stocking will be short-lived and the slide led by de-stocking will not going to sustained in near future but other component like inflation and global demand can play their rile in decline.

Global situation are not good at all as the world number one U.S. economic recovery loses momentum and Europe struggles with a sovereign debt crisis .Being a export economy this is not a good news for the China.

The sub-index of new export orders fell to 50.5 in June from 51.1 in May, reflecting persistent weakness in global demand.
  
Despite such issues most of the economists in China believe that Chinese economy, underpinned by the relentless urbanization, is in no danger of a hard landing.

The People's Bank of China is desperate to put a lid on price rises, so they lifted the reserve requirement ratio for banks nine times and raised interest rates four times since October 2010. 

To control the situation the Chinese government is expected to forge ahead with further tightening measures to combat the price rise that is running near three-year top, but most economist feels the current regulator tightening will end by December 2011. 

Earlier this week, Chinese Premier Wen Jiabao indicated for the first time that country would struggle to meet its 4 percent inflation target in 2011, underlining expectations that interest rates will rise further.

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