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Friday, August 21, 2015, 11:17

China factory activity at 77-month low

By Agencies
China factory activity at 77-month low

BEIJING - The Caixin flash China general manufacturing PMI plunged to a 77-month low to 47.1 in August from 47.8 in July as domestic and export demand dwindled, a preliminary Caixin survey showed on Friday.

A reading above 50 indicates expansion, while a reading below that represents contraction.

"The Caixin Flash China General Manufacturing PMI for August has fallen further from July's two-year low, indicating that the economy is still in the process of bottoming out," said Dr He Fan, chief economist at Caixin Insight Group.

China's top economic planner, the National Development and Reform Commission (NDRC), released an action plan in early August to improve the core competence of six manufacturing sectors between 2015 and 2017.

The NDRC has planned several projects focusing on railway transportation equipment, ship making and oceaneering equipment, industrial robots, new energy vehicles, modern farm machinery and advanced medical devices and medicine.

To realize the goals, the NDRC vowed to attract private investment, increase financial support and encourage acquisitions of foreign high-tech manufacturers

Friday's reading was the worst since March 2009 and the sixth straight one below the 50-point level, which separates growth in activity from contraction on a monthly basis.

The flash PMI, the earliest economic measure to be released about China each month, is closely followed by global investors for clues on the health of the economy.

A detailed breakdown of the activity survey showed conditions were deteriorating on almost every level, with factory output sinking to a near four-year low, domestic and export orders declining at a faster rate than in July and companies laid off more workers.

The estimate is based on approximately 85 to 90 percent of total PMI survey responses from more than 420 manufacturing companies each month and is designed to provide an indication of the final PMI.

The final PMI for August will be released on Sept 1.

US stock futures fell sharply after the PMI report and most Asian stock markets and the Australian dollar extended early losses. Overnight on Wall Street, the S&P 500 sank to a more than six-month low on concerns about how China's slowdown would impact US firms' earnings and global growth.

GROWING RISKS

The country's stock markets are yet to stabilize after a near-collapse in early summer, and the slumped by nearly 2 percent.

The central bank said the yuan move was a technical one and part of a reform process.

The gloomy PMI figure followed other official data last week that showed growth in China's factory output, investment and retail sales were all weaker than expected in July.

New orders determining local and foreign demand slumped, while new export orders shrank to their worst level since June 2013.

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.

As sales sag, the survey showed factories were cutting staff at a faster pace to rein in costs, depressing employment to a level not seen since the 2008/09 global crisis.

With low demand, factories struggled again with deflationary pressure. Input prices fell for the 13th straight month, reflecting lower commodities prices, but output prices slid at their fastest rate in seven months as manufacturers were forced to slash prices amid fiercer competition.

SOFT OUTLOOK

The latest PMI will reinforce hopes that China will increase government spending, cut interest rates again and relax banks' reserve requirements to get the economy back on an even keel.

Chinese shares tanked as much as a third during a selloff last month. Equity and currency markets have also been hit by volatility after the yuan devaluation.

 
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