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Home / Business News / China slows to cruising speed; India perks up

China slows to cruising speed; India perks up

China's manufacturing sector cooled further in July, even shrinking by one measure, but markets took the news as a sign of a desired slowdown rather than a harbinger of a slump that could derail global recovery.

business Updated: Aug 02, 2010, 11:58 IST

China's manufacturing sector cooled further in July, even shrinking by one measure, but markets took the news as a sign of a desired slowdown rather than a harbinger of a slump that could derail global recovery.

Manufacturing surveys from other big emerging economies India and Russia, also served to bolster investor sentiment, with Asia's third-largest economy marking its 16th month of expansion and Russia's activity improving for the seventh month in a row.

HSBC survey of Chinese companies showed on Monday that manufacturing activity fell for the first time since the depths of the global downturn in March 2009, while a similar government survey published on Sunday showed a marked dip in growth.

A marked slowdown in US growth in the second quarter heightened market concerns about the strength of recovery in the world's biggest economy, leaving investors betting on China and the rest of Asian to pick up the slack.

One concern is that Asia, which has led the economic recovery, could lose traction if the authorities in Beijing pulled on the reins too hard, hitting demand in what has become a top export market for many of China's regional peers.

The economy already slowed markedly from April to June, expanding at a 10.3 per cent annual clip after 11.9 percent growth in the first quarter.

HSBC, however, played down fears that world's prime growth engine, poised to overtake Japan this year as the second largest economy, might be sputtering.

"We still expect the economy to grow by around 9 percent in the second half of 2010 and 2011, driven by resilient private consumption and continued investment demands of ongoing infrastructure and new public housing construction projects," HSBC economists Qu Hongbin and Sun Junwei said in a note.

Controlled slowdown

An index based on a nationwide survey of business executives conducted for HSBC dropped to 49.4 from 50.4 in June, while one compiled by China' statistics bureau fell to a 17-month low of 51.2 from 52.1 in June.

With surveys still seen fitting a scenario of a controlled slowdown resulting from government efforts to prevent overheating, financial markets took the data in stride.

The Japanese yen and Australian dollar barely budged, while an index of Asian stocks outside Japan edged up following the report.

India's HSBC Markit Purchasing Managers' Index, bounced back in July, driven by new orders and stronger factory output, rising to 57.6 in July from 57.3 in June when it slipped from a multi-year high.

"India is on a roll. The economy was given another leg up in July as new orders continued to pour in. Even the export sector appears to be holding up well, despite worries over cooling demand abroad," said Frederic Neumann, co-head of Asian Economics Research at HSBC.

In Russia, the headline index crept up to 52.7 from 52.6 on the back of rising orders and employment.

South Korea's trade data out on Sunday also helped boost confidence with exports growing by nearly 30 per cent from a year earlier in July, beating market expectations.

The country's PMI manufacturing index eased slightly in July, but remained comfortably above the no change threshold.

In another sign of the region's strength Australia's PMI gauge rose on the back of growth in orders and output.

U.S. manufacturing PMI, due at 1400 GMT, is expected to drop to 54.1 in July from 56.2 in June, and will follow Friday's gross domestic product data that showed economic growth slipping to 2.4 per cent in the second quarter from 3.7 per cent in the first.

In contrast, the euro zone, dogged by lingering anxiety about high levels of sovereign debt, is showing remarkable resilience.

The July manufacturing PMI index due around 0800 GMT is seen at 56.5, unchanged from June and well in the growth territory.

On Friday, Belgium reported economic growth of 0.7 per cent in the past quarter after a stagnant performance in the first quarter.

While Belgium is only the euro area's sixth-largest economy it is the first to report its GDP data and it is often seen as bellwether for the single currency area because of its trade and business links with bigger EU partners.

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