China's factory output lowest in six years

news
23 September 2015

Flagging demand dragged China's giant factory sector into its sharpest contraction in over six years in September, a private survey showed today, triggering a flight to safety in Asian markets that could extend across the globe.

The bleak data came after the US central bank refrained from lifting interest rates for the first time in nearly a decade last week, citing concerns that global problems, and China's slowing economy in particular, may hurt the US recovery.

The preliminary Caixin/Markit China Manufacturing Purchasing Managers' Index (PMI) fell to 47.0 in September, the worst since March 2009, missing market expectations for 47.5 and slipping from August's final 47.3.

Levels below 50 signify a contraction.

It was the seventh consecutive year that China's manufacturing sector had shrunk, and the survey showed business conditions deteriorating almost across the board, as firms slashed output, prices and jobs at a faster pace as orders fell.

While other PMIs from the United States and Europe due out later today are likely to point to resilient factory growth outside China, Europe's refugee crisis is expected to have a negative impact.

Global investors and policymakers have been on edge over the health of China's economy this year, as it looked set to log its weakest performance in at least a quarter of a century.

A plunge in China's stock market over the summer and a surprise devaluation in the yuan have roiled global markets, and raised doubts inside and outside China over Beijing's ability to manage the world's second-largest economy.

There are signs that China's stumbling economy has unnerved companies, financial markets and consumers around the world.

"In the United States, a study showed well-heeled shoppers spooked by whipsawing stock markets and shoppers waiting for the best deals could result in the weakest US holiday sales season for retailers this year since a recession in 2010," Reuters reported.

 And despite China having slashed interest rates five times since November, small- and mid-sized Chinese firms are still starved for funds due to banks' preferences to lend to big, state-owned companies.

Accounting for up to 80 per cent of urban employment and 60 percent of China's GDP, the woes of small Chinese companies could be harbinger of the hard times ahead.

 





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