China's manufacturing activity reached a nine-month low in August, as both global and domestic demand slow down.
The Purchasing Managers’ Index fell to 49.2, the lowest reading since November last year.
According to analysts, the measures the Chinese government took to respond to fears over excessive lending and asset bubbles have slowed down growth significantly, leading to a situation where banks are more reluctant to provide businesses with funding.
Alistair Thornton of IHS Global Insight commented: “China’s manufacturing sector continues to struggle, weighed down by a significant domestic slowdown, a wholly unsupportive external climate and a completely insufficient policy response.”
Wei Guoxiong, chief risk management official with the Industrial and Commercial Bank of China was quoted as saying: “Past experience has taught us that a bad loan crisis usually came three years after a period of abnormal credit surge. There will be a notable rise in bad loans in the banking sector this year.”
Worrying figures weren’t confined to China however. Due to extensive power failures manufacturers in India were forced to stop production for several hours at end in the last few weeks, which, coupled with shrinking exports, led to the lowest growth rate in nine months for Indian manufacturing.
However, HSBC India Manufacturing Purchasing Managers’ Index was 52.8 in August, which shows the industry is still expanding, if at the lowest rate in months.
Both Korea and Taiwan’s PMI remained well into contractionary territory, although the former showed an increase in August.
The Chinese slow down is also threatening Australia, which has invested heavily in the development of its natural resources sector in order to feed demand coming from China.