China manufacturing woes continue: PMI index slips below 50 pts

September 2
1:41 AM 2015

Several measures gauging the manufacturing industry activity are showing discouraging results. The latest manufacturing gauging index slipped below 50, which indicates the deceleration in the manufacturing industry, falling to 49.7 in August.

The manufacturing index is the official government's measuring index from China's National Bureau of Statistics. This indicates weakening sentiment among manufacturing purchasing managers.

After the release of latest manufacturing index data, the stocks on Shanghai Stock Exchange fell over four percent in early trade on Tuesday.

Another study made by Chinese Media Group Caixin and Markit Economics also indicated that manufacturing PMI dipped to 47.3 in August. This marks the index falling below for sixth month. 

The average manufacturing PMI index level during 2011 and 2015 was 47.30. The manufacturing PMI index touched its all-time high of 52.30 in January 2013 and all-time low of 47.30 in August 2015, according to Markit Economics.

The continuous drop in new work in the domestic market and export orders has forced the major and small manufacturers to cut down production levels. This has been in force for several months.

Confirming this continuous drop in manufacturing output, private economic indicators also reveal that Caixin's Purchasing Managers' Index (PMI) dipped to 47.8 in July and 49.4 in June. This was weakest since July 2013. The weakness further widened in August.

Analysts feel that the ongoing weakness in the manufacturing industry is temporary only as the restrictions on polluting units also caused slowing down in production activity. The Tianjin warehouse explosion also adversely impacted the industrial activity.

A series of explosions occurred in Tianjin industrial area. Tianjin is port city on the Chinese northwestern coast.

The government's National Bureau of Statistics' measuring index mostly tracks the major industrial units, while Caixin study covered small units also as it gives more thrust to industrial activity in the small and medium enterprises (SMEs).

Markets circles, investors and economists are keen on watching manufacturing data for getting more clues about the future direction of the Chinese economy. Several equities on Shanghai Stock Exchange tumbled this morning as the latest drop in manufacturing index has further dampened the sentiment. 

Concerns are increasing across the global markets as the world's second-largest economy is slowing down. Gross domestic product (GDP) growth slowed down to seven percent during the second quarter and this is likely to be lower in the next few years. 

Chinese stock markets were also moving in roller coaster rise for the past few months. The latest crash has resulted in evaporation of $3trillion market value. There's no trading activity in half of the listed stocks.

Adding further to woes, China devalued its currency Yuan and this has resulted in unforeseen high volatility in the financial markets. To arrest the further damage to Yuan, which was nose-diving in a free-float trading, Chinese government unofficially intervened into the market in support of its currency. 

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