Sharp China factory slowdown in August raises global growth fears

World markets had already been on edge after China’s surprise devaluation of the yuan last week and a 33 percent fall in its stock markets since mid-year.

No wonder we see today again weaker oil alongside weak performing commodities with the exception of gold, which seems to regain bit by bit its “safe-haven” status, notwithstanding we are in a global dis-inflationary world.

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.

The index remained above the 50 threshold that separates expansion from contraction for the fourth straight month and showed activity expanded at the fastest pace since January.

The drop in manufacturing in China is rattling for many economies especially its Asian trade reliant neighbors.

South Korea, which counts China as its biggest trading partner, said on Friday its exports slumped and Taiwan reported on Thursday its export orders in July fell more than expected. This suggests domestic demand is gaining strength.

And while China’s stock markets do not always closely mirror trends in the real economy, the latest falls may well reflect wider concerns – coming soon after the government’s shock decision to devalue China’s currency by nearly 4 percent over successive days last week.

The speed with which China’s economy is losing steam has led to analysts warning the government may struggle to meet its growth target of 7 percent this year if it doesn’t ratchet up policy support. “Rather, it is the pace of the slowdown in domestic demand that is more worrying and points to the underlying challenges facing the manufacturing sector”, HSBC economists Julia Wang and Jing Li said in a research note. Against the backdrop of tighter liquidity conditions, analysts are calling for more easing of the reserve requirement ratio (RRR) to ease the credit situation.

The Caixin China Report on General Manufacturing is based on about 90 percent of responses to surveys sent to more than 420 manufacturers.

The outlook from Caixin and Markit, published on Friday, shows the index fell to 47.1 from 47.8 in July. Economists polled by Reuters forecast an August reading of 54.0. The benchmark Nikkei average plunged 597.69 points or 2.98 percent to finish at 19,435.83, its lowest level in over three months, while the broader Topix index of all first-section shares closed down 3.13 percent at 1,573.01.

The Australian and New Zealand dollars fell on Friday after another disappointing set of Chinese economic figures added to worries about global growth.

“According to survey respondents, the strong dollar continued to put pressure on export sales and competitiveness, while heightened global economic uncertainty appeared to have dampened client spending both at home and overseas”.