Chinese manufacturing continues to slump

@CNNMoney July 2, 2012: 6:48 AM ET

NEW YORK (CNNMoney) -- China's manufacturing sector is still expanding, but barely.

The National Bureau of Statistics in Beijing said Sunday morning that the China Manufacturing Purchasing Managers Index for June fell to 50.2 from 50.4 in May. Any reading below 50 signals contraction in the manufacturing sector.

The good news is that economists had been expecting the numbers to be worse. According to a report from emerging markets analysts for Barclays in Hong Kong, the consensus was for the PMI figure to hit 49.9.

A separate reading of the manufacturing sector from HSBC bank showed a modest contraction, slipping to a 2012 low of 48.2 in June from 48.4 in May.

China's central bank cut interest rates in early June for the first time since 2008. Many economists are predicting that the People's Bank of China may need to continue lowering rates.

While China's economy is still expanding at a rate that is the envy of the developed world -- gross domestic product rose at an annualized 8.1% in the first quarter -- there are concerns that the debt crisis in Europe is hurting China. The eurozone is China's largest export market.

Along those lines, the Chinese government noted in Sunday's PMI report that there was a sharp drop in new export orders in June.

Still, the Barclays analysts said that domestic demand appeared to improve -- a possible sign that China's rate cut and other steps taken to try and stabilize the economy are working. The analysts wrote that the June PMI figures "should provide some relief to investors fearful of a 'freefall' in the Chinese economy."

Inflation is no longer a significant problem for China either, which likely gives the government more room to lower interest rates. The Chinese government reported in early June that consumer prices rose at just a 3% annualized rate in May.

That's the fourth straight month of consumer price increases below 4% and far below the 6.5% rate of inflation from the summer of 2011.  To top of page

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