China factory activity contraction worsens

Chinese factory workers Image copyright Getty Images

China's factory activity contracted at the fastest pace for six and a half years in September, according to a preliminary survey of the vast sector.

The Caixin/Markit manufacturing purchasing managers' index (PMI) fell to 47 in September, below forecasts of 47.5 and down from 47.3 in August.

A reading below 50 indicates contraction in the sector, while one above shows expansion.

The disappointing data will stoke concerns about slowing growth in China.

The survey comes just a day after the Asian Development Bank lowered its growth forecast for China this year to 6.8% - below the government's target of about 7%.

Last week, the US Federal Reserve also held off raising interest rates for the first time in nearly a decade in part due to concerns over the impact of the slowdown in China.

The closely watched private survey focuses on smaller and medium-sized firms, while the official one is based on larger firms.

An acceleration in shrinking factory production, export orders and employment were the key factors behind the weaker-than-expected reading.

Concerns 'overdone'?

Economist Julian Evans-Pritchard at Capital Economics said that while the result was "clearly disappointing, it is not enough to lead us to change our view that the current pessimism over China is overdone".

He said in a note on Wednesday that China still faced "structural drags on growth" but that "with most of the key leading indicators such as fiscal spending and credit growth now looking supportive, we continue to expect a cyclical recovery in economic activity".

Chinese policymakers have cut interest rates five times since November, among other measures to boost lending and consumer spending.

The government has also repeatedly said that growth in the world's second largest economy is on track despite the fears of a hard landing.

Chinese President Xi Jinping, who is visiting the US, sought to reassure the world in a speech on Wednesday, saying the economy was on a steady course with fairly fast growth.

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