China factory slump deepens as index hits 6.5 year low

The Caixin Flash China manufacturing purchasing manager’s index (PMI) fell further to 47 in September from 47.3 in August (see chart 1), coming in below expectations. Levels below 50 signify a contraction. “Overall, the fundamentals are good”, said Dr. He Fan, chief economist at Caixin Insight Group.

The data aggravated investor anxieties that global economic growth might be sputtering, sapped a rally in European equities and gave Asian stock markets their worst day in months. The preliminary index reading is based on 85 percent of survey respondents.

Economists had expected the latest PMI to remain anaemic but edge up slightly, as a slew of stimulus measures since previous year slowly take effect and as many factories which had closed in August and early September began to reopen.

The numbers renewed fears about China’s economy and global growth, but Australia’s new treasurer, Scott Morrison, said the country’s economy remains fundamentally strong and urged his country’s opposition to support a new free trade pact.

The Shanghai Composite was down 1.7% at 3,131.77 on the disappointing data. There has been concern for almost a year that China’s GDP growth has dropped well below the government’s target of 7%.

As such, Taiwan’s central bank may cut interest rates for the first time since 2009 when it meets on Thursday, economists polled by Reuters said, amid a weaker growth outlook. Markit said the PMIs point to third-quarter growth of 0.4 percent.

A private Chinese manufacturing gauge fell to the lowest in 6 1/2 years, underscoring challenges facing the nation’s factories as the economy’s old growth engines splutter.

Xi Jinping, China’s president, delivered a speech Tuesday evening in Seattle at the start of a state visit to the US in which he sought to reassure Americans on a broad range of contentious issues, including the health of the Chinese economy.

According to Qu’s observations, there have been some signs of a cyclical recovery in the property market and better access to funding for infrastructure projects in recent months, which should lay the ground for a modest ground rebound towards the end of the year. “Patience may be needed for [government] policies designed to promote stabilisation to demonstrate their effectiveness”.

Asian currencies sensitive to Chinese demand also depreciated further, as the weak factory reading added to many factors weighing on emerging-market exchange rates, including weak global demand and the prospect of higher interest rates in the U.S.