Economy | Chinese manufacturing activity rumbles to 77-month low

Chinese manufacturing activity rumbles to 77-month low

August 21, 2015 1:32 PM (UTC+8)

 

OK. China’s economy is slowing. But that’s not exactly news, is it?

The Chinese factory sector shrank at its fastest rate in six years in August a private survey reported Friday. The news sent global stocks markets reeling and the price of gold surging.

The preliminary Caixin/Markit China Manufacturing Purchasing Managers’ Index hit a 77-month low of 47.1 points for August, down from July’s 47.8 reading, and far short of Reuters’ consensus estimate of 47.7. Any reading below 50 signifies contraction in the economy.

Workers in Chinese factory
Workers in Chinese factory

It was the worst reading for Chinese manufacturing activity since March 2009, the nadir of the global financial crisis, and the sixth straight one below the 50-point level.

New orders and employment contracted more sharply from the previous month than any other categories. The flash PMIs are the earliest activity measure to be released on global economies each month, and are closely followed by investors.

“Uncertainty about China growth is now the main swing factor in markets,” Tim Condon, an economist at ING Group in Singapore, told Reuters. “Today’s data reinforced the doubts about global growth.”

The report sent the Shanghai Stock Exchange Composite Index tumbling 4.3% to 3,508 and the Hang Seng Index down 1.5% to 24,410. Asian countries reliant on trade with China also saw their markets tank. Japan’s Nikkei 225 sank 3% to 19, 436 and Korea’s Kospi Index skidded 2% to 1,876. Meanwhile, the price of gold jumped 0.6% to $1,159.

South Korea, which counts China as its biggest trading partner, said on Friday its exports slumped nearly 12% in the first 20 days of August from a year ago, reported Reuters.

But there’s also a flip side. The PMI indicates “that the economy is still in the process of bottoming out,” He Fan, Chief Economist at Caixin Insight Group wrote in the survey. “But overall, the likelihood of a systemic risk remains under control and the structure of the economy is still improving.

In a report He co-authored with Zhu He, a researcher at Caixin Insight Group, they said the weakness was partly caused by external factors, including weaker demand from Europe, which was struggling to cope with the Greek debt crisis, and a cheaper currency in some of China’s major trading partners including Japan.

In the end, He offered an optimistic outlook: “There is still pressure on the front of maintaining growth rates, and to realize the goal set for this year the government needs to fine tune fiscal and monetary policies to ensure macroeconomic stability and speed up the structural reform. This will lead the market to confidence and renew the vigor of the economy.”

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