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China PMI Hits Near-3-Year Low as Costs Soar

China's manufacturing sector has lost considerable momentum because of surging costs at home and weak demand from abroad, an official survey showed on Tuesday.

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CNBC.com
China, Chinese Flag

The purchasing managers' index, complied by the China Federation of Logistics and Purchasing, fell to a nearly three-year low of 52.0 in June from 53.3 in May and 59.2 percent in April.

A reading over 50 indicates an expansion of activity, while one below 50 suggests contraction.

Zhang Liqun, an economist with the Development Research Centre, a think-tank under China's cabinet, said the rise in stocks of finished goods and input prices pointed to a worsening business climate.

"Business is turning negative, and this may undermine economic growth from the micro level," he said.

Zhang said seasonal factors may have explained some of the PMI's decline over the past two months, but that the underlying trend was a softening economy.

The sub-index for new export orders fell to 50.2 percent, with overall orders and backlogs of orders dropping as well.

But the input price sub-index for China's manufacturers rose to an all-time high since the PMI survey was launched in 2005.

The survey of managers found growing complaints about rising prices, capital shortages, problems with the supply of raw materials and transportation bottlenecks.

Also on Tuesday, Fan Jianping, an economist in a think-tank under China's central planning agency, said in published comments that the country's economic growth rate would drop to 10.3 percent in 2008 from 11.9 percent in 2007.