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China’s PMI continued to expand in December, but showed some signs of slowing momentum.  Total output and new orders slowed to their lowest levels in three months while the headline figure showed continuing expansion at 54.4 – down from 55.3 in November.  Despite the slow-down this is still strong historical data.  Input prices continued to rise in December, but also slid to a 3 month low.  Firms in China have had an easier time passing along costs than those in the USA.  The key points from the report:

  • Slower rises in output, new business and backlogs of work.
  • Strongest increase in purchasing for eleven months.
  • Input cost inflation eased, but remained substantial.

Hongbin Qu of HSBC elaborated on the most recent report:

“Inflation rather than growth still remains as the top policy concern, despite the moderation in December’s manufacturing PMI reading. We expect Beijing to continue to relying on quantitative tightening measures to curb inflation and counter the impact of QE2, while modest interest rate hikes are also needed to anchor inflation expectations in the coming months.”

Overall, this is another strong report and no cause for immediate concern, however, given the rising inflation and government attempts to slow price increases the decline in momentum does raise the risk of a more pronounced slow-down in 2011.  As previously mentioned, a Chinese slow-down is likely the greatest risk to the global economy heading into 2011 and 2012.

Source: HSBC

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