By Greg Peel

The "flash" manufacturing PMI (purchasing managers' index) calculated by HSBC is an early estimate of HSBC's ultimate result published immediately after month-end. It is a calculation independent of the official number published by Beijing.

July's flash number indicates a fall to 48.9 from the 50.1 reading in June and we note readings below 50 suggest activity is contracting. This result represents a 28-month low and the first time the PMI has fallen into the contraction zone since July last year.

The result belies the strength of the industrial production data released by Beijing for June, notes HSBC, suggesting that rebound was just a blip and that monetary policy tightening measures will likely impact further in coming months. However HSBC cites increasing consumer spending and ongoing massive investment in infrastructure as providing support to an average GDP growth rate for 2011 in China of 9%.

It is important to note that while there might be a bit investor panic off the back of this result, realistically Groundhog Year is simply rolling on. Yes ? it was exactly this month last year China's manufacturing PMI fell into contraction territory but by August it was back above 50 again, rebounding quite sharply for a couple of months before settling once more.

Seasonality? Resource analysts certainly note that it around this time each year China moves from a commodity destocking phase to a restocking phase and they base their expectations for higher commodity prices in the second half on that assumption. There are already some signs in inventories that this is occurring.

So it's no great stretch to assume manufacturing activity is in some way linked, thus while markets have been fearing the impact of tightening from Beijing for two years now economists are generally of the belief only a soft landing, and not a hard landing, will result.

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