China factory sector shrinks most in 9 months: survey

Wed Aug 22, 2012 11:56pm EDT
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By Lucy Hornby

BEIJING (Reuters) - China's factories contracted in August the most in nine months according to a survey showing falling export orders and rising inventories, signs that more policy action is probably needed to stop a slowdown in economic growth now in a seventh quarter.

The HSBC Flash China manufacturing purchasing managers index (PMI) fell to 47.8 in August, its lowest level since November, down from both the 49.5 July flash and the 49.3 final reading.

After hovering for several months just under the 50 mark that divides expansion from contraction, the index is now at levels rarely seen since the 2008-2009 global financial crisis.

"Inventory numbers are the highest on record. Orders to inventory are the lowest since December 2008. Foreign orders to inventory are the lowest since January 2009. It's very hard to put a positive spin on anything within the data," Robert Rennie, chief currency strategist at Westpac Bank, told Reuters.

"Bottom line - a very poor update with some very poor China data to come," he said.

The risk of slower Chinese growth denting demand for Australian exports knocked a quarter of a U.S. cent from the value of the Aussie dollar and depleted enthusiasm for regional equities, which gave up some of gains .MIAPJ0000PUS.

The survey provides an early peek at data for August, as well as an indication that a pick-up in economic growth may not have taken root as anticipated.

A fall in the new export orders sub-index to 44.7 - the lowest level since March 2009 - provides particularly bearish reading.   Continued...

A labourer works on coils of steel wire at a steel wholesale market in Beijing January 17, 2012. REUTERS/Soo Hoo Zheyang