Chinese manufacturing set to contract

HSBC’s preliminary survey of manufacturers indicated that the sector may be heading for its first contraction in a year, a sign that the government’s tightening measures are taking effect, the Financial Times reported. The flash purchasing managers’ index for China has fallen to 48.9 in July, the lowest in 28 months. A reading above 50 indicates expansion in the manufacturing sector, while one below 50 indicates contraction. Soaring inflation has pushed the central bank to steadily tighten over the past nine months, raising interest rates five times and banks’ reserve requirements nine times in the period. The slowdown is sparking concerns that tightening will weigh on economic growth, but most economists say that China is still poised to grow strongly in the second half of the year. HSBC’s final PMI figure will be published August 1.