World Economy

China’s Biggest Production Slowdown in 6 Years

China’s Biggest Production Slowdown in 6 YearsChina’s Biggest Production Slowdown in 6 Years

China’s production activity is showing further signs of a slowdown, with its key indicator, the Purchasing Managers Index at its lowest point since March 2009.

The outlook from Caixin and Markit, published on Friday, shows the index fell to 47.1 from 47.8 in July. The 50 mark separates expansion from contraction, and the last time the PMI was above 50 was February this year, RT reported.

“The Caixin Flash China General Manufacturing PMI for August has fallen further from July’s two-year low, indicating that the economy is still in the process of bottoming out. But overall, the likelihood of a systemic risk remains under control and the structure of the economy is still improving,” Dr. He Fan, Chief Economist at Caixin Insight Group said in a statement.

Both output and new orders contracted at sharper rates this month. The gloomy data fuels fears of slowing growth in the world's second-largest economy. The statistics come more than a week after Beijing’s surprise devaluation of its national currency, aimed at reviving its faltering exports.

The government needs to decide on fiscal and monetary policies to ensure macroeconomic stability and speed up the structural reform, according to He Fan. This will “lead the market to confidence and renew the vigor of the economy,” he added.

Concerns over an economic slowdown have triggered a massive stock sell-off. China's benchmark Shanghai Composite is off 32% over the past two months, dropping another 4.2% on Friday.

With the country’s real economy cooling, Beijing faces a difficult task reaching its stated aim of 7% growth in 2015.

The Caixin China report on general manufacturing is based on about 90% of responses to surveys sent to more than 420 manufacturers. It is an overall measure of the health of China’s manufacturing sector.

Markets Take a Hit

Chinese stock markets–which have been extremely volatile in recent months–extended falls after the manufacturing figures were released, DW reported. Emerging market assets also took a hammering, and oil prices were on track for their longest losing streak since 1986, as fears of a China-led deceleration in global growth gripped markets.

MSCI's broadest index of Asia-Pacific shares outside Japan fell 2.4% to its lowest since July 27, 2012, for a weekly loss of 6.1%.

Shanghai stocks dropped over 4% to below the 200-day moving average for the first time since July 2014. That brought losses for the week to 11%. The Hang Seng index in Hong Kong was down 2.4% for a weekly loss of 7.4%.

European shares also fell sharply, with the Pan-European FTSEurofirst 300 down 1.6% to 1,453.62–the index's lowest level since January.

China’s surprise devaluation of the yuan and heavy selling in its stock markets in recent weeks have sparked fears that it could be at risk of a hard landing, which would hammer world growth.

Markets in countries whose economic fortunes are closely linked to China’s growth tumbled. Japan’s Nikkei average dropped almost 3% to six-week lows on Friday, while the Kopsi index in South Korea fell 1.92%.

Shares in Australia are having their worst month since the global financial crisis hit in October 2008. On Friday afternoon the benchmark ASX200 was down 1.4% at 5,214 points and is down 8.5% so far in August, according to broker Commsec.