Manufacturing activity in China expanded at a slower pace in October as growth in output and new orders eased, according to two surveys of purchasing managers published yesterday.

The Purchasing Managers' Index published by the China Federation of Logistics and Purchasing and the National Bureau of Statistics fell for the first time in three months, to 54.7. The CLSA China Purchasing Managers' Index dropped to 52.1, the lowest reading since March. A reading above 50 reflects expansion in activity and a reading below 50 a contraction, Bloomberg News said.

"The months ahead, in our view, will be distinctly tougher for Chinese manufacturing than 2006 has been," said Jim Walker, chief economist at CLSA. "Export orders have turned down sharply. We expect that downturn to intensify as the US economy slows sharply in 2007."

Growth in the United States, which buys a quarter of China's exports, slipped to a 1.6 percent annual rate last quarter, the slowest pace in more than three years. Manufacturing expansion in China, the world's fourth-largest economy, is also slowing as Premier Wen Jiabao curbs investment in factories and real estate.

It was the first time in a year that both indexes fell, and the first time since April that they moved in the same direction. Both surveys attributed the drop to slowing growth in output and new orders and weakening export demand.

"The main risk is the US slowdown, which we expect will continue into the fourth quarter, and that's affecting export orders and manufacturers in China," said Ma Jun, head of China economic research at Deutsche Bank AG in Hong Kong. "But the impact on overall economy is quite limited since exports only account for about nine percent of gross domestic product."

Wen's curbs on lending and investment, which are targeting wasteful expansion in industries such as steel and cement, won't lead to a sudden economic slowdown, said economist Zhang Liqun.

"Most purchasing managers still remain optimistic on the production outlook," Zhang, a senior research fellow at the State Council's Development Research Center, said in the logistic federation's release. "Macroeconomic controls have been relatively moderate and haven't changed the fundamental pattern of stable and rapid growth."

China's economic expansion slowed to 10.4 percent in the third quarter after reaching a more than decade-high of 11.3 percent in the previous three months, as investment growth eased, the statistics bureau said in October.

Even so, economists at JPMorgan Chase & Co and Goldman Sachs Group Inc have boosted their estimates for China's economy after the report, saying the investment slowdown may prompt the government to relax administrative controls.

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