China's manufacturing activity shrinks for July

By Kim Young-gyo HONG KONG, July 21 (Yonhap) -- China's manufacturing activity contracted in July for the first time in a year as the country's tightening measures have taken effect, a British bank said Thursday. In a monthly report, HSBC Ltd. said its flash purchasing managers index (PMI) for China's manufacturing sector came to 48.9 for July, down from 50.1 in June. It was the first time that the index fell below the benchmark 50 level since July 2010. The PMI measures the economic health of a country's manufacturing sector. A reading of 50 or above represents an expansion of the sector compared to the previous month while a reading lower than 50 represents a contraction. HSBC said the contraction was attributed largely to weakness in domestic demand as well as overseas demand, expecting industrial growth will decelerate in the coming months as tightening measures continue to filter through. The British bank, however, remained rather optimistic about the Chinese economy, saying China will grow at nearly 9 percent during the second half of this year. "Despite the slowing of manufacturing activity, resilient consumer spending and continued investment in thousands of infrastructure projects will continue to support a GDP growth rate of almost 9 percent for the rest of this year," said Qu Hongbin, chief China economist at HSBC. The bank predicted that China's tightening policy will last through the third quarter, weakening PMI readings. "Only until inflation pressures ease meaningfully toward the end of the third quarter or the beginning of the fourth quarter will tightening policy come to an end, after which growth should slowly regain momentum," Qu said. In a battle against soaring inflation, the central People's Bank of China has raised the benchmark interest rate three times this year while increasing the amount of money banks must keep in reserves six times in 2011. China's consumer prices rose 6.4 percent in June from a year earlier, hitting a 35-month high. They grew more than 5 percent for the fourth straight month, and the growth exceeded 6 percent for the first time since July 2008.