New data has emerged today which shows that China’s manufacturing sector is now in its worse shape since 2009.
A preliminary version of the Caixin/Markit purchasing managers’ index fell to a 77-month low of 47.1 in August from July’s 47.8 on a 100-point scale. Numbers below 50 indicate a manufacturing sector contraction.
This contraction was considerably more pronounced than many analysts of the Chinese economy had expected.
Making this data even more concerning was the fact that both total manufacturing output is in decline, as well as the number of new orders.
These preliminary figures are reportedly based off the responses of 85-90 companies who were interviewed by Caixin/Markit during research for the index.
Despite this decline in manufacturing output, the authors of the index believe the situation in China is stable.
“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. But overall, the likelihood of a systemic risk remains under control and the structure of the economy is still improving,” Dr. He Fan, Chief Economist at Caixin Insight Group said in a statement.
Nonetheless, Dr He Fan has urged the Chinese government to do more to help the Chinese economy transition to its so-called ‘New Normal’.
“There is still pressure on the front of maintaining growth rates. The government needs to fine tune fiscal and monetary policies to ensure macroeconomic stability and speed up the structural reform.”
Global market chaos
Financial markets around the world have reacted with alarm to these new figures, triggering a wave of share price losses.
In the UK, the FTSE 100 fell 2.8%, marking a ninth consecutive day of losses, meanwhile in the US, the Dow Jones Industrial Average closed down 530 points in one of the largest single day falls for this index in recent years.
Additionally, the price of oil in the US has fallen below $40 a barrel for the first time since the Global Financial Crisis.
All eyes are now on the Chinese government to see if any further macroeconomic measures will be rushed through to help stimulate their slowing economy.