(Updates with federation comment in fourth paragraph)
Sept. 3 (Bloomberg) -- A Chinese non-manufacturing index dropped in August, adding to evidence that growth is moderating in the world’s second-largest economy after the government raised interest rates, curbed lending and imposed limits on home purchases.
A purchasing managers’ index dipped to 57.6 from 59.6 in July, the China Federation of Logistics and Purchasing said on its website today. A reading above 50 indicates expansion.
Today’s data adds to evidence that growth in Asia’s biggest economy is slowing. Premier Wen Jiabao’s campaign to curb inflation and housing prices is damping demand at home, while a widening sovereign debt crisis in Europe and faltering expansion in developed economies threatens to crimp overseas sales.
“Railway investment started to decline and the impact of slowdown in some infrastructure investment growth on the construction market has emerged; and the significant drop in new order and construction business activity indices is the main factors behind the slowdown in non-manufacturing economy in August,” Cai Jin, the Federation’s vice president, said in the statement.
The federation’s non-manufacturing PMI is based on a survey of about 1,200 companies in 20 industries including transport, real estate, retailing, catering and software.
The gauge of new orders declined to 54.1 from 55.6. The measure of construction business activity dipped to 57.3 from 59.9 according to the statement.
The input price index dropped to 60.2 in August, the lowest level this year, from July’s 63.1, indicating that “the prices level is stabilizing”, Cai said in the statement.
Gross domestic product expanded 9.5 percent from a year earlier in the second quarter, slowing from the 9.7 percent gain in the first three months as government tightening policies kicked in.
Citigroup Inc. economists estimate the pace of expansion will moderate to 8.9 percent in the third quarter and 8.4 percent in the fourth quarter as export growth to developed economies slides, adding to the domestic slowdown.
A manufacturing index released by the federation on Sept. 1 stayed near a 29-month low in August and a separate measure published by HSBC Holdings Plc contracted for the second month. The gauge of export orders in the federation’s index contracted for the first time in more than two years while the same measure in the HSBC index showed a reading below 50 for the fourth month.
The slowdown in the economy is “reasonable” and within expectations, Wen wrote in an article in Qiushi, the magazine of the ruling Communist Party this week. He reiterated that stabilizing consumer prices remains the top economic priority.
The government is implementing policies to help low-income households cope with inflation.
A total of 13 provinces raised minimum wages in the first quarter of the year by an average 21 percent, according to the Ministry of Human Resources and Social Security. The personal income tax threshold was raised to 3,500 yuan ($549) a month from 2,000 yuan from Sept. 1, a change which will see about 60 million fewer people liable to pay the tax, according to the Ministry of Finance.
Higher wages are boosting profits at retailers including Suning Appliance Co., the nation’s biggest electronics retailer. The company last month reported a 25 percent increase in first- half profit as sales climbed 23 percent.
China has raised interest rates five times since mid- October, introduced home purchase limits in some cities and tightened lending to help rein in consumer-price gains that have topped Wen’s 2011 target of about 4 percent every month this year.
Inflation accelerated to 6.5 percent in July from a year earlier, the highest in three years. Global liquidity, imported inflation and higher costs will add to government’s difficulty in meeting its full-year inflation target, the National Development and Reform Commission said on Aug. 29.
In the latest tightening move, the central bank will start to include margin deposits in calculations of banks’ reserve requirements from Sept. 5.
“With the combined pressure of an economic slowdown and persistent inflationary pressure, we think macro policymakers still face a tough balancing act between growth and inflation,” Shen Jianguang, chief economist for Greater China at Mizuho Securities Asia Ltd, said in a Sept. 1 note.
--Zheng Lifei. Editors: Nerys Avery,
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