China manufacturing at 6.5 year low

A key indicator of China’s manufacturing activity slumped to a 77-month low in August, an independent survey showed on Friday, fuelling concerns of further deceleration in the world’s second-largest economy.

The preliminary reading of Caixin’s Purchasing Manager’s Index (PMI) came in at 47.1 this month, the Chinese media group said in a joint statement with Markit, a financial information services provider that compiled the survey.

But overall, the likelihood of a systemic risk remains under control and the structure of the economy is still improving.

“Due to uncertainly about where China’s economy is going, what Beijing will do [in terms of monetary policy] and how much the impact it will have on the global market, anything related to China worries is sold”, said Takuya Takahashi, a strategist at Daiwa Securities in Tokyo.

U.S. stock futures fell sharply after the PMI report and most Asian stock markets and the Australian dollar extended early losses.

Gross domestic product dipped to 7% in the second quarter, and economists expect the figure to trend lower over the next few years.

However, the flash index for new export orders fell to 50.5 from 52.2 in the previous month, suggesting overseas demand is losing momentum as China’s economy slows. They also weakened as the U.S. Federal Reserve prepares to raise interest rates for the first time since 2006.

The central bank said the yuan move was a technical one and part of its currency reform process, but many investors fear the currency will be allowed to depreciate further amid political pressure to shore up flagging exports, potentially triggering a global currency war.

Beijing earlier this year set the annual target for economic growth at “around seven percent”.

Markets in countries whose economic fortunes are closely linked to China’s growth tumbled.

A dearth in new business caused factory output to shrink for a fourth consecutive month to hit a trough of 46.6, a level not seen since November 2011 and down from July’s 47.1.