PMI rebounds on new orders

A rise in new orders helped Shanghai's industrial activities to rebound in July after experiencing its first contraction in 10 months, the Shanghai Statistics Bureau said yesterday.

Shanghai's Purchasing Managers' Index, a comprehensive gauge of manufacturing activities in the city, settled at 50.5 last month, recovering from June's 49.3, which was below the 50 mark for the first time in 10 months.

A reading under 50 indicates a contraction while a reading above it suggests an expansion.

"The rebound is a bit unexpected as pressures from China's tightening monetary policies still persisted," said the bureau in a report, which attributed the PMI's gain in July to the better-than-expected domestic demand that boosted new orders.

But the bureau cautioned: "Global demand is unlikely to pick up quickly due to the debt crises in Europe and the United States."

The component index of new orders also rebounded 3.4 points from a month earlier to 51.5 in July after two months of contraction. New orders rose notably in textile, apparel, shoe, timber processing, petroleum refinery and non-metal firms.

But the sub-index of new export orders dipped 0.4 point to 50.6, reflecting weaker external demand.

The bureau said it didn't know if the PMI will stay over 50 for long.

"The spreading impact of China's tightening monetary policies has made it increasingly difficult for smaller manufacturers to get credit," said Lian Ping, chief economist at the Bank of Communications. "With inflation still high, it seems the tough days will continue for industrial companies."

The component index of input prices in Shanghai caused worries that inflation may not be under control. It jumped 3.2 points from a month earlier to 56.1 in July, reversing a downward trend in the past five months.

Nearly half of the surveyed manufacturers said rising costs of raw materials were the biggest challenge and impacted their operations.

Source:Shanghai Daily