Latest Chinese data triggers worries of slowdown

With China’s factory sector losing steam in August, data signalling slowdown in Chinese economy continues to disturb global markets

Photo by: Reuters
Photo by: Reuters

Employees work at a Shuangwei factory in Putian, Fujian province, China, May 14, 2015

Activity in China's factory sector shrank at its fastest rate in at least three years in August as domestic and export orders tumbled, increasing investors' fears that the world's second-largest economy may be lurching towards a hard landing.

Even more worryingly, China's services sector, which has been one of the lone bright spots in the sputtering economy, also showed signs of cooling, a similar business survey said.

Hurt by soft demand, overcapacity and falling investment, the economy has also been buffeted by plunging shares and a shock yuan devaluation, in what some have called a "perfect storm" of factors that is rattling global markets and could strain relations with China's major trading partners.

Japanese Finance Minister Taro Aso said on Tuesday it would be beneficial for this week's meeting of the Group of 20 major economies to discuss what is going on in China's economy.

"Capital market turmoil has made Chinese businesses and consumers turn more cautious," Bill Adams, a senior economist at PNC Financial Services in Pittsburgh, said in reference to a 40-percent plunge in Chinese shares since mid-June.

Adams said China's economy could grow around 6.5 percent in the second-half of the year, easing to 6.2 percent in 2016.

Some analysts believe growth levels are already well below that, putting Beijing's official target of 7 percent at risk.

News of deteriorating business conditions set off fresh selling in Chinese shares, with the blue-chip CSI300 index tumbling 4 percent at one point, dragging down stocks across Asia as well as US stock futures.

Analysts said the bleak readings affirmed bets that China, which has slashed interest rates five times since November, must loosen policy again soon to avert a sharper economic downturn that could weigh on global growth even as the US central bank prepares to raise interest rates.

Additionally, China's official manufacturing Purchasing Managers' Index (PMI) fell to 49.7 in August from 50.0 in July, the National Bureau of Statistics said on Tuesday. That was in line with a Reuters poll but the lowest since August 2012, and below the 50-point mark separating growth from contraction.

New orders, a proxy for domestic and foreign demand fell to 49.7 in August from July's 49.9. New export orders contracted for an 11th straight month.