China HSBC PMI hugs 7-mth low

PMI near 7-mth low,growth in new orders at 8-mth low

Survey shows factory inflation cooling to 7-mth trough

HSBC says China8217;s policy tightening taking effect

Although the March reading was near a seven-month low,it still showed China8217;s vast manufacturing sector growing for the eighth consecutive month. A reading above 50 indicates expansion and a figure below 50 denotes contraction.

It also suggested that the world8217;s second-largest economy had so far registered little damage in its trade with crisis-stricken Japan.

If anything,the combination of moderating factory activity and inflation suggested China was scoring some success in keeping a lid on prices in the world8217;s fastest-growing major economy.

Economic growth is only moderating rather than slowing too much. More importantly,price hikes have also started to slow,said Qu Hongbin,an economist at HSBC8217;s chief economist in China.

These confirm our view that quantitative tightening is working. So as long as Beijing keeps tightening for another three to four months,inflation should start to slow meaningfully in the second half of 2011,he said. 8212;8212;8212;8212;8212;8212;8212;8212;8212;8212;8212;8212;8212;8212;8212;8212;8212;8212;

HSBC China PMI seasonally adjusted:

Mar,Feb,Jan,Dec,Nov,Oct,Sep,Aug,Jul,Jun

51.8,51.7,54.5,54.4,55.3,54.8,52.9,51.9,49.4,50.4

8212;8212;8212;8212;8212;8212;8212;8212;8212;8212;8212;8212;8212;8212;8212;8212;8212;8212;

The sub-index for growth in new orders slid to an eight-month low. Anecdotal evidence suggested the slowdown was due to softer market demand,HSBC said.

That manufacturers were less busy helped to cool the factory input prices sub-index to seven-month lows of 67.5,well down from 74.6 a month earlier.

That would be welcomed by the Chinese government,which has been battling to rein in rising prices. For investors,it could hold out hope that China may not need to tighten policy so far that it could cripple growth.

China8217;s central bank has steadily tightened policy after declaring in October that fighting inflation was a top priority.

Since October,it has raised interest rates three times and the reserve requirement ratio for banks six times.

With China8217;s inflation within sight of 28-month highs of 5.1 percent and likely to quicken in coming months,many investors are sure that more policy tightening still lies ahead.

Markit,the British research firm that compiles the PMI,also highlighted the following findings:

8212; Businesses surveyed said the domestic market was the cause of price pressures,even though global commodity prices played a part,too. Copper,oil and food prices were all reported to have risen from a month ago.

8212; Some manufacturers complained there was a shortage of labour,which made hiring increasingly difficult over the month.

8212; The output prices sub-index hit a six-month low,but stayed above the long-run trend. Manufacturers said they had to raise prices to bolster operating margins in the face of sharply rising input costs.

8212; Suppliers8217; delivery times lengthened for the 20th straight month due to supply shortages at vendors. Transportation problems and labour shortages also hindered delivery of goods.

8212; The sub-index for backlogs of work rose markedly to hit its highest since May 2010,even though new export orders slowed. No reason was offered for the rise.

8212; The stocking of raw materials and semi-manufactured goods fell again for the third straight month. Firms said the drop in inventory levels was due to lacklustre growth of purchasing and due to delays in the supply chain.