Sat, Aug 22, 2015 - Page 14 News List

China factory slump raises global fears

INVESTORS ON EDGE:A survey showing a significant contraction in China’s manufacturing sector has fueled investors’ concerns about global growth for this year

Reuters, BEIJING

A man checks an imported car parked in the Qingdao free trade port area in China’s eastern Shandong Province on Wednesday. A key indicator of China’s manufacturing activity slumped to a 77-month low this month, an independent survey showed yesterday.

Photo: AFP

Worries of a deepening China economic slowdown intensified yesterday after a private survey showed the factory sector shrank at its fastest rate in almost six-and-half years this month, hammering global stocks and commodity prices.

The gloomy figure sent investors fleeing for cover in gold and bonds, fearing China’s sagging economy would translate into slower global growth and muddy the outlook for the timing of the first US interest rate hike in nearly a decade.

World markets had already been on edge after China’s surprise devaluation of the yuan last week and a near-collapse in its stock markets in early summer.

“Uncertainty about China growth is now the main swing factor in markets,” Singapore-based ING Group economist Tim Condon said. “Today’s data reinforced the doubts about global growth.”

The preliminary Caixin/Markit China Manufacturing Purchasing Managers’ Index (PMI) stood at 47.1 this month, well below a Reuters poll median of 47.7 and down from last month’s final 47.8.

It was the worst reading since March 2009, in the depths of the global financial crisis, and the sixth straight one below the 50-point level, which separates growth in activity from contraction on a monthly basis.

The downdraft from China is rattling economies of its trade- reliant Asian neighbors and prompting many Western companies to reduce investments and look for ways to cut costs.

South Korea, which counts China as its biggest trading partner, yesterday said its exports slumped nearly 12 percent in the first 20 days of this month from a year ago.

Taiwan reported on Thursday that its export orders last month fell more than expected, with a 14.1 percent slump in orders from China and smaller declines from Japan and Europe, leaving the US as the lone bright spot.

While a similar factory survey in Japan pointed to a pick-up in activity there due to stronger domestic demand, policymakers in Tokyo are keenly aware of the dangers if China slows further.

The flash PMIs are the earliest activity measure to be released on global economies each month, and are closely followed by investors. Similar surveys were due to be released in Europe and the US later yesterday, and disappointing readings could spark further market mayhem.

US stock futures fell sharply after China’s 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.

Analysts still expect the US central bank to raise interest rates later this year, though minutes from the US Federal Reserve’s last meeting in July showed policymakers discussed China, Greece’s debt crisis and the weak state of the global economy.

A detailed breakdown of China’s PMI survey showed conditions deteriorating on almost every level this month. Factory output sank to a near four-year low as firms laid off more workers, while domestic and export orders fell at a faster rate than last month.

Following three decades of blistering double-digit economic growth, Chinese authorities have had limited success in shoring up activity this year, despite four interest rates cuts since November last year.

Worse, last week’s shock 2 percent devaluation in the yuan and a near-collapse in Chinese shares over the summer that was countered by a massive stock market rescue do not appear to have calmed investor jitters.

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