Sept. 1 (Bloomberg) -- A Chinese manufacturing index stayed near to the borderline between expansion and contraction in August, signaling limits for more monetary tightening.
The Purchasing Managers’ Index was at 50.9, from the 29- month low of 50.7 in July, the China Federation of Logistics and Purchasing said in a statement today. That compared with the median estimate of 51 in a Bloomberg News survey of 14 economists. A reading above 50 indicates an expansion.
Premier Wen Jiabao signaled yesterday that a faltering global recovery and turbulence in financial markets have yet to convince the government to switch from a focus on taming inflation. In the latest tightening, the central bank will expand banks’ reserve requirements, starting from Sept. 5.
“The overall economy is heading toward a soft landing as the authorities balance policies to reflect external uncertainties and domestic inflationary pressures,” Zhang Zhiwei, Hong Kong-based chief China economist at Nomura Holdings Inc., said before today’s release. “There won’t be a significant relaxation in monetary policies so the PMI is unlikely to see a big rebound in coming months.”
The manufacturing index from the logistics federation is based on a survey of purchasing managers in more than 820 companies in 20 industries.
A separate measure released by HSBC Holdings Plc and Markit Economics may show China’s manufacturing contracted at a slower pace last month, according to a preliminary reading published on Aug. 23. The final data will be released at 10:30 a.m. local time today.
Five increases in interest rates since October, limits on home purchases and lending curbs that included raising banks’ reserve requirements to a record are slowing domestic demand in Asia’s fastest-growing economy.
Angang Steel Co., the largest Hong Kong-traded Chinese steelmaker by market value, said last week first-half profit tumbled 91 percent because of slowing demand from automakers and higher raw material costs. Shares in Geely Automobile Holdings Co., whose parent owns Volvo Cars, fell to their lowest in almost two years in Hong Kong trading on Aug. 22 after saying demand for vehicles in China is showing signs of slowing.
At the same time, the outlook for exports is clouded by weakening demand in the U.S. and Europe, China’s largest markets, as consumer confidence wanes.
Growth Estimates Cut
UBS AG, Morgan Stanley and Deutsche Bank AG are among banks that reduced their estimates for China’s growth last month to reflect weaker expansion in developed countries that could crimp overseas sales.
China’s lenders were told they will have to include margin deposits in calculations of their reserve requirements starting Sept. 5, according to a People’s Bank of China document obtained by Bloomberg News on Aug. 30. The move is intended to deal with the rapid growth in banks’ off-balance sheet lending that’s complicating the central bank’s attempts to control liquidity, according to UBS’ Hong Kong-based economist Wang Tao.
“Concerns over inflation have outweighed external uncertainties and policy is not likely to loosen soon,” said Nomura’s Zhang.