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China’s factories cool as India powers ahead

May 3, 2011

As Obama announced the final rights on Osama bin Laden, India’s factories heeding the monetary policy review for 2011-12 by the Reserve Bank of India for a 50 basis points interest rates raise this week, pulled together to grow for the 25th consecutive month and at their strongest pace since November with the PMI rising to 58.0 from 57.9 in March, well above the 50 mark that divides growth from expansion.

With monetary tightening as a result of inflation biting into the Chinese economy and a consequent rise in the value of the yuan the Chinese market is feeling the pinch. With data from factories showing that output in the world’s largest manufacturer has cooled, the Chinese economy is looking ahead at stabilizing and simmering down prices.

Data on Sunday showed China’s official PMI fell to 52.9 in April from 53.4 in March, falling short of market forecasts for a rise to 54 as growth in new orders weakened to an eight-month low.

“Overall, the PMI shows there is still a possibility that the Chinese economy may slow down, especially as falling demand growth leads to adjustments in inventories, increasing the possibility of slowing economic growth,” Zhang Liqun, a government researcher told Reuters.

“The fall may show that export growth will continue to slow down,” Zhang added  in a comment to Reuters on behalf of the China Federation of Logistics and Purchasing, which compiles the official PMI. On the other hand, “The strong manufacturing PMI numbers are testament to the resilience of growth” in Asia’s third-largest economy, HSBC’s chief India economist Leif Eskesen told the AFP.

With the Chinese economy slowing, manufacturing in India has picked up with a slight nod towards manufacturing moving to less expensive locales such as India and Vietnam, even as China’s input prices remain high. However India, growing at its strongest pace since November, and even though the economy is forecast to grow nine percent this fiscal year the RBI has warned of capacity constraints that are fuelling inflation as factories work at full tilt and supply struggles to keep up with demand.

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