Mixed outcomes of a tightening climate

Industrial output in China edged up slightly in June, increasing by 15.1 percent year-on-year, up from 13.3 percent in May. This was a broadly encouraging reflection of industrial activity for June, the highest reading since May 2010, yet the mood among Chinese industries may be turning rather less positive. This seems to be reflected in the Purchasing Managers Index (PMI), a survey of managers in the industrial sector in which a reading above 50 indicates expansion and below 50 indicates contraction. China's PMI now seems indeed to be on the verge of contraction. In June, China's official PMI was 50.9, decreasing from 52 in May (see Chart 2). June was the seventh straight month of a decline in PMI, and is the lowest reading since February 2009, which was the last time that PMI returned a reading below 50.

Tightening measures also impacted China's imports in June, whichfell to $139.7 billion, the lowest level since November 2009. China's exports, however, reached a new record high of $161.9 billion in June (see Chart 3), pushing China's trade surplus out to $22.3 billion for June (compared to $13.1 billion in May). 

A question of priorities

The picture that of China's economy in June is thus generally a positive one, with strong economic growth recurring in the second quarter of the year. Yet there are signs in the economy that long-running tightening measures are making a restraining impact on industrial growth and on imports, and the intended effect – controlling fluctuating prices – is not yet attained. Hence as long as China's CPI keeps rising, rapid economic growth will be a somewhat tarnished achievement.