China's non-manufacturing growth slowest in 4 months

China’s non-manufacturing industries expanded at their slowest pace in four months in June, adding to concerns that efforts to tame inflation were curbing growth in the world’s second-biggest economy.

The purchasing managers’ index dropped to 57 from 61.9 in May, the China Federation of Logistics and Purchasing said on its website today. A reading above 50 indicates expansion. In June, the manufacturing index fell to the lowest level in 28 months as export orders and output grew at a slower pace, according to a July 1 report released by the federation.

The slowdown in manufacturing “caused a reaction in producer services,” said Cai Jin, the organization’s president. “Although, from April, it has been dropping, the index level still shows that China’s non-manufacturing industries are maintaining quick growth. Affordable housing construction has accelerated.”

The government’s drive to build 10 million low-income housing units this year had increased demand for housing and building industries, Cai said. The Communist Party is boosting investment in affordable housing to counter a slump in manufacturing growth. In a February 27 interview, Premier Wen Jiabao set a target to build 36 million social housing units during the next five years.

The non-manufacturing PMI is based on data from industries, including transport, real estate, retailing, catering and software.

The pressure for additional monetary tightening may be easing after manufacturers’ input prices rose in June at the slowest pace since July 2010, according to data from the logistics federation. Morgan Stanley says inflation may have peaked last month at an estimated 6.2 per cent, the highest rate since July 2008.

The central bank has raised reserve requirements 12 times and interest rates four times since the start of last year.

“The risk of a hard landing for China’s economy is small,” Peng Wensheng, an economist with China International Capital Corp said in Beijing on July 1.