Busy China and India factories keep inflation aloft

By Jason George and Koh Gui Qing

April 1, 2011 5:28 AM EDT

Factories in China and India bumped up production in March as manufacturers drew in more new orders, keeping price pressures intact and making further monetary tightening necessary.

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Surveys of manufacturers in Asia's economic giants showed worries that high oil prices could scupper growth were unfounded for now, even though China's outlook was clouded by signs of disruptions to trade with crisis-stricken Japan.

In China, a pair of purchasing managers' indexes (PMI) showed factories were growing moderately rather than booming, and some economists said a further slowdown could be in store.

Yet few thought slackening production would slam the brakes on the world's fastest-growing major economy. Instead, they said it showed China was scoring some success in taming prices with its gradual monetary policy tightening.

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"It's growing at a slow and steady speed as tighter monetary policy impacts," said Stephen Green, an economist at Standard Chartered in Shanghai.

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"I'm not overly worried about growth. We need to hit inflation. That is the priority still," he said.

China's official purchasing managers' index (PMI), compiled by the government, rose to 53.4 in March from a six-month low of 52.2, slightly under a Reuters forecast for 54.

A separate survey published by HSBC showed the PMI steadying near seven-month lows at 51.8, from February's 51.7.

In India, the mood among manufacturers was more upbeat.

A survey by HSBC of around 500 firms showed the PMI held steady at a four-month high of 57.9 in March from February.

"Growth is not an immediate concern," Leif Eskesen, HSBC's chief economist for India & ASEAN said in reference to India.

"Output growth kept up the pace, and the inflow of new orders accelerated, holding promise of a continued strong momentum in output in the months ahead," he said.

PRICES STILL RISING

Indeed, the surveys suggested policymakers' main focus in months ahead will be on prices.

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