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China manufacturing figures show faster contraction

China's manufacturing activity shrank at its fastest rate in three years in August, the official Purchasing Managers’ Index (PMI) showed.07 Sep 2015

The PMI fell to 49.7 in August from the previous month’s reading of 50, in the first month since February that it has fallen below 50.

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

The unofficial Caixin General China Manufacturing PMI, which surveys a group of private sector and small and medium enterprises, was 47.3 in August – slightly higher than the 47.1 'flash' figure reported earlier this month but down from 47.8 in July.

This was the quickest deterioration in operating conditions for Chinese manufacturers for over six years, the report's producer, the Caixin report's producer Markit Economics said.

Total new orders and new export orders declined at sharper rates than in July, contributing to the most marked contraction of output since November 2011, it said.

Lower production requirements in turn meant that companies bought less, with purchasing activity falling at the fastest rate since March 2009, Markit Economics said.

Weak demand led to the first rise in stocks of finished goods for six months, the research company said.

Chinese manufacturing companies reduced workforce numbers for the 26th month in a row.

He Fan, chief economist at Caixin Insight Group said: "The final Caixin China Manufacturing PMI for August continued to retreat, with sub-indices signalling continued weak demand in the markets for goods and factors of production. Recent volatilities in global financial markets could weigh down on the real economy, and a pessimistic outlook may become self-fulfilling. Macroeconomic regulations and controls must continue and fresh reform measures must be introduced. Fine-tuning should go hand in hand with speedier implementation of structural reform in order to release the full potential of growth and lead the market to confidence."

The Caixin PMI is based on data compiled from monthly questionnaires sent to purchasing managers in around 420 manufacturing companies.

Chinese premier Li Keqiang called last week for faster development of the country's manufacturing sector to boost the Chinese economy, describing manufacturing as a "pillar industry" that needs to see more innovation and start ups nationwide.