Less speedy manufacturing growth is the latest sign that China may be entering a new phrase in its hard fight against soaring inflation.
The China Federation of Logistics and Purchasing said that its purchasing managers index (PMI) fell to 52 in May from 52.9 in April, down from 53.4 in March. That means the world’s second largest economy just registered the slowest manufacturing expansion in at least nine months.
For those who have recently been in the limelight for shorting the Chinese economy, the declining PMI seemingly plays into their hands, except that the May figures also indicate that China’s PMI has remained above 50, the boom-and-bust line, for 27 consecutive months.
However, for policymakers who have made fighting inflation a top priority of this year, the ongoing slowdown in manufacturing expansion makes a case for both confidence and caution.
The easing in the PMI is encouraging because it shows that the Chinese economy is slowing because of tightening measures. If the country is to claim a definite victory over runaway inflation, the economy must be cooled down to allow consumer price rises to stabilize and subdue.
Better still, the pace and degree of the slowdown has so far been mild enough that the Chinese economy is able to retain much of its momentum and is in no danger of a hard landing.
Meanwhile, the finding that chronic power shortages, worsened by the drought, have played a key role in pulling industrial output growth down to the boom-and-bust line in May in Central China, should alert authorities to looming threats to a manageable moderation in growth.
Given the importance of manufacturing expansion to the country’s overall economic growth, it is no wonder that the government is keen to forestall any abrupt slowdown in factory growth which would otherwise make it difficult to press ahead with tightening policies.
The inadequate power supply should be promptly and properly addressed to avoid large-scale factory shutdowns that may inflate growth concerns.
Besides, a more serious problem is emerging from the country’s tough battle against climbing inflation and that is the increasing number of small and medium-sized enterprises, mostly private ones, that have been hit disproportionately hard by the government credit curbs. The plight of private enterprises demands close attention from Chinese policymakers.
It is high time for policymakers to take stock of the impact of tightening measures on different sectors of the economy. If there is a price the country has to pay to effectively fight soaring inflation, it should be fairly shared across the economy to ensure its sustainability in the long run.
China Daily Asia Weekly on June 10, 2011, page 10