Growth of China's industrial activity slows

THERE IS more gloom for the Chinese economy as new data shows manufacturing activity in June grew by its slowest pace this year, showing how government efforts have yet to prevent the world’s second largest economy slowing.

The state-affiliated China Federation of Logistics and Purchasing (CFLP) said its purchasing managers’ index (PMI) fell 0.2 per cent to 50.2 per cent in June, just above the 50 level that indicates expansion. The index was at 50.4 in May, 53.3 in April and 53.1 in March.

The reading is better than analysts had expected but there was consensus that the government must ease monetary policy further to avert a sharp slowdown in economic growth.

Europe’s sovereign debt crisis is weighing on exporters, while property market curbs are translating into less activity in the building sector and there are fears the economy could grow by less than 8 per cent in the second quarter.

Growth fell to a nearly three-year low of 8.1 per cent in the first quarter. Analysts expect it to decline further before a possible rebound late this year.

The figure is low by Chinese standards, after years of double-digit growth, and it increases the chances that premier Wen Jiabao will introduce a more substantial stimulus package to keep the economy expanding.

The slowdown comes at a sensitive time for the ruling Communist Party, which is preparing to hand power to a younger generation of leaders this year.

The government cut interest rates early in June for the first time in nearly four years, and also cut petrol and diesel retail prices. It has promised to pump money into the economy.