The preliminary Purchasing Managers’ Index (PMI) from Caixin Media and Markit Economics was at 47.1 for August.
Job creation also slowed in August, with the index at 52.2, its weakest since July 2014, down from a final July reading of 53.8. The 50 mark separates expansion from contraction, and the last time the PMI was above 50 was February this year.
Sub-indexes of both new orders and new export orders decreased at a faster pace in August, and output and employment also fell more rapidly.
A key indicator of China’s manufacturing activity slumped to a 77-month low in August, an independent survey showed Friday, fuelling concerns of further deceleration in the world’s second-largest economy. The Chinese manufacturing sector continues to struggle, with its PMI data contracting for the sixth consecutive month.
Caixin Insight Group Chief Economist He Fan, who compiled the PMI report, said the likelihood of systemic risk remained “under control, and the structure of the economy was still improving”, with the services sector showing strength. Shanghai stocks-which have been extremely volatile in recent months-extended falls after the figures came out, closing down 4.27 percent. For instance, the Nikkei Flash Japan Manufacturing PMI increased from 51.2 to 51.9, the fastest pace since January.
Dr. He said there is still pressure on 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 structural reform.
“Markets are anxious about the China slowdown, so bonds rallied in response, continuing on from the gains we’ve seen all week”, he said.
The decline in output growth ended a steady recovery trend recorded in the second quarter of this year. He said the data showed China’s economy was “still in the process of bottoming out”, but could rebound “within the next few months“, with new infrastructure projects due to begin operation, and the devalued yuan potentially giving a lift to exports.
Shen and Wang said they expect Beijing to respond with two interest rate cuts in the next year and a reduction in minimum reserves banks are required to hold, a move that would free up more money for lending.
The Eurozone services PMI rose to 54.3 in August from 54 in July.