China manufacturing growth slows

NEW YORK (CNNMoney.com) -- China's manufacturing sector is still growing, but the pace is starting to slow. That could set off some alarm bells in the financial markets about the state of the global economy.

The government-run China Federation of Logistics and Purchasing reported Sunday that the country's Purchasing Managers Index, or PMI, fell to 51.2 in July from 52.1 a month earlier. A PMI figure above 50 indicates growth in the manufacturing sector, but the July reading was a 17-month low.

The declining pace of manufacturing growth could spook investors, particularly after the United States government reported Friday that the U.S. economy grew at a sluggish 2.4% annualized pace in the second quarter.

A measure of new orders in China also dropped sharply, coming in at 50.9 in July. That was down from 52.1 in June. The fall in new order activity could reflect renewed fears of weakness in the economies of the United States and Europe.

China has been helping to keep the overall global economic recovery on track as the nation, in addition to being a major manufacturer, is increasingly becoming a key market for goods made in the U.S. and Europe.

In the second quarter, China's GDP rose at an impressive pace of 10.3%. A Chinese official said Friday that China's economy now tops Japan's as the world's second-largest.

But the growth in China's economy was down from a rate of 11.9% in the first quarter, as the government has taken steps to try and cool the economy down.

There have been some concerns that China's economy may have been growing too quickly, and that could give rise to asset bubbles, especially in the real estate market.

However, some experts think that China's economy is still on track to report solid growth, even if it is tapering off a bit.

Last week, news agency Market News International said that its China business sentiment survey rose slightly in July.

According to that survey, "concerns on the impact of the eurozone crisis have abated somewhat" and Chinese companies were now seeing the usual increase in demand for goods ahead of the important fourth-quarter holiday season.

Carl Weinberg, chief economist with High Frequency Economics, a research firm based in Valhalla, N.Y., also wrote in a report Sunday that by looking at other indicators of manufacturing activity, such as steel output and demand, it's clear that China is still solidly in expansion mode.

"China's economy is very strong. It is recovering from a small slowdown," Weinberg wrote.