A key gauge of China’s all-important manufacturing sector has tumbled to its lowest level in more than six years, indicating that the country’s factories are losing momentum.
The “flash” measure of sentiment among manufacturing purchasing managers fell to 47.1 in August, the worst figure in 77 months and a decline from the index’s final reading of 47.8 in July, according to Caixin Insight and Markit Economics. Any number below 50 indicates a deceleration in the manufacturing sector.
The results indicate “the economy is still in the process of bottoming out,” said Caixin economist He Fan. “There is still pressure on the front of maintaining growth rates … the government needs to fine tune fiscal and monetary policies.”
Stocks in Shanghai dropped 4.3% by market close on Friday, extending losses for the week to 11%.
This isn’t good news for the world’s second largest economy, and will fuel worries over China’s ho-hum growth.
Gross domestic product dipped to 7% in the second quarter, and economists expect the figure to trend lower over the next few years.
Adding to worries, domestic stock markets have been on a roller coaster ride in recent months. At one point during the stock slide, nearly $3 trillion in market value was erased and half of all listed companies halted trading. The rout forced the government to intervene.
China’s yuan has also experienced unexpected volatility, after the central bank allowed the currency to sharply depreciate.
Fears of a China slowdown have ripped through global markets this week, and all major indexes were in the red on Thursday.
The Dow fell 358 points to close below 17,000, for the first time since last October. The index fell 2.06% — its worst loss since February 2014.
While market volatility may continue, some economists say the current panic over the broader Chinese economy is overstated.
“The government still has plenty of policy ammunition, and we think they would rather step up policy support rather than allow growth to slip much further,” said Julian Evans-Pritchard of Capital Economics.
The Chinese government will release its official August factory activity data on Sept. 1
