China factory data fuels slowdown fears
- 21 August 2015
- From the section Business
Factory activity in China shrank at its fastest pace in more than six years in August, data suggests.
The private Caixin/Markit manufacturing purchasing managers' index (PMI) dropped to 47.1 from 47.8 in July. A figure below 50 indicates contraction.
The data triggered another sell off in Chinese shares, which ended the day down more than 4%.
The factory data is likely to compound global worries that the Chinese economy is set for a continued slowdown.
Investors are growing increasingly concerned, as the Shanghai Composite index is now down 12% this week. European markets were also lower again on Friday, with the UK's FTSE 100, Germany's Dax and France's Cac 40 all down about 1.3% in mid-afternoon trading, while the Dow Jones in the US opened down almost 1%.
Friday's factory output reading was the lowest since March 2009, during the depths of the global financial crisis, and the sixth consecutive below the 50-point level.
The Caixin flash PMI is the earliest economic measure of the Chinese economy to be released each month and is closely watched for clues on how growth is faring.
Earlier in August, China's official economic growth data showed a further slowdown in the past quarter, expanding 7% compared to a year earlier, its slowest pace since 2009.
In 2014, China's economy grew at its slowest pace since 1990. It expanded by 7.4%, missing its annual growth target of 7.5% for the first time in 15 years.
Since June 2015, stock exchanges on the mainland have seen extreme volatility, undermining investor confidence and leading to government intervention.
Catching a cold?
Nicholas Teo, market analyst with CMC markets, warned that China's slumping economy could dash hopes for a global recovery.
"China today is no longer just the 'factory' of the world. It is an important consumer of the world's products and services. Many companies and industries depend on the Chinese consumers who are now 'disadvantaged' in purchasing power," he said.
"So when it sneezes', many around the globe may just catch a cold."
Greater China economist Julia Wang at HSBC warned that economic recovery continued to lose momentum with "further policy-easing measures, from monetary easing to fiscal support needed".
But other analysts warned against overreacting to the current situation.
AMP Capital's chief economist Shane Oliver described the situation as a "global share market correction", pointing out that emerging markets were "arguably much stronger than in 1997-98, with stronger current account balances and higher foreign exchange reserves".
Beijing has struggled to stabilise the country's stock markets, which have fallen sharply since mid-June.
Earlier this month, the central bank stunned global markets by taking steps to devalue the country's currency, the yuan, allowing it more freedom to fluctuate in line with market developments.
The move was widely seen as an attempt to prop up the country's ailing export sector, making Chinese goods cheaper abroad.