LI, Tao @ Hong Kong

The city’s Purchasing Manager’s Index (PMI) fell to a seven-month low of 52.9 in April due to slower output and new orders growth and high imported inflation, an HSBC survey showed Thursday.

The index tracks changes in private sector business conditions. A reading above 50 indicates expansion, while that below 50 signals contraction.

Though Hong Kong’s business activity expanded for the 22nd month in succession, the April PMI, down 2 points from 54.9 a month earlier, was the slowest since August 2010, representing a modest improvement in operating conditions within the Hong Kong private sector, said the report.

The PMI is based on five sub-indices, including output, new orders, employment, suppliers’ delivery times and stocks of goods purchased.

The latest data marked notable decrease in output and new orders. Both dropped to 53.4 in April from the respective 56.4 and 56.0 a month earlier. New business from the mainland sub-index edged down to 54.3 from 54.8 in March.

Backlogs of work, which expanded again for the ninth straight month, printed 53.3 in April, lower than March’s 55.3 but still above long-run trend level of 51.4, as survey respondents highlighted their inability to increase output sufficiently to satisfy all new work orders received in April, according to the report.

“Moderating signs in Hong Kong’s private sector have emerged and stand consistent with the more sustainable level of expansion developing on the mainland,” said HSBC Hong Kong Chief Executive Mark McCombe.

The official HSBC China Manufacturing PMI released on April 29 showed mainland’s manufacturing sector also expanded at a modest rate, standing at 51.8 in April, unchanged from March but lagging on the long-run series average of 52.3.

“Hong Kong’s private sector driven economy is slowing in line with the mainland’s more moderated pace of manufacturing sector growth as domestic demand also starts to normalize after well over a year of sizzling growth momentum,” said Donna Kwok, Greater China economist at HSBC.

“The mainland’s inflationary bud has yet to be nipped so the central government will likely tighten for a while longer, which means the mainland support for Hong Kong private businesses will continue to be restrained through the second quarter,” said Kwok.

The mainland’s inflation is expected to fall slightly in the second half this year, but it will be tough to keep the full-year rise in consumer prices below the government’s 4 percent ceiling, Xu Lianzhong, a director at the National Development and Reform Commission, said in late April, after inflation had surged 5.4 percent in the year to March.

Driven by increases in the cost of food and rents, Hong Kong’s inflation hit its highest level since August 2008 in March, rising 4.6 percent year-on-year compared with 3.7 percent in February, according to data from the Census and Statistics Department posted on April 21.

Kwok said a cooling but still firm pace of business expansion was arguably the best outcome, as inflationary pressures were still building at home and it would help to bring Hong Kong’s domestic demand growth engine towards a more normalized and sustainable pace of expansion.

Paul Tang, chief economist with Bank of East Asia, said the city’s remarkable economic achievements in earlier months might also result in a temporary “inferior” performance by comparison.

“The temporary cooling down won’t last long and Hong Kong’s fast growing economic momentum is likely to remain,” Tang told China Daily.

The city’s gross domestic product (GDP) went up 6.8 percent in real terms in 2010 year-on-year, according to official figures. GDP growth is expected to ease to around 4 to 5 percent in 2011 as exports are expected to slow, Financial Secretary John Tsang said in February.

China Daily

(HK Edition 05/06/2011 page2)

http://www.chinadaily.com.cn/hkedition/2011-05/06/content_12454530.htm