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China's manufacturing PMI at 78-month low

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September 24
7:03 AM 2015

The Chinese manufacturing sector registered its worst performance in the past 78 months. The measure of sentiment among purchasing managers, Preliminary Caixin China manufacturing index (PMI) dropped to 47 in September from 47.3 in August.

The drop of Preliminary Caixin China manufacturing purchasing managers' index that factories are running out of steam in the world's second-largest economy. The Chinese government and Caixin will release final PMI readings for September on 1 October.

Considering the flash measure of sentiment among manufacturing purchasing managers is a key benchmark in gauging the strength of the factories output.

Any level of the index below 50 is considered to be deceleration in the manufacturing sector. Economists hold the view that the main reason for sluggishness in the manufacturing sector is that previous changes in external demand and pricing factors.

PMI, the flash measure of sentiment among manufacturing purchasing managers' index to six year low of 47.0 is further confirming the under current weakness in the Chinese economy. Economists forecast that the gross domestic product (GDP) growth may slip below seven percent for 2015. 

As the preliminary measure of Chinese factory output in September eased to 47.0, the hopes on stabilization of economy slowdown during the second half diluted in the market. Chinese stock markets also dropped on the PMI news. The situation is such that Chinese economy is struggling to grow at even seven percent, the lowest in the past 25 years. 

The new export orders were dropped and this indicates turbulent conditions in foreign trade. Chinese companies are suffering from cancellation of export orders and this is further impacting the manufacturing sector.

If the Caixin manufacturing purchasing managers' index is hovering above 50 then only one can say China's manufacturing industry is expanding, but it's much below it, say economists. The latest preliminary PMI has discouraged the market and created fresh bout of concerns about future course of economy. 

Asian Development Bank (ADB) has lowered its growth forecast for China to 6.8 percent for 2015 while Chinese government is optimistic of achieving seven percent GDP growth rate.

The steep drop in factory output, export orders and employment rate are confirming the deceleration in the Chinese economy, observe some economists.

However, Julian Evans-Pritchard, an economist at Capital Economics, holds the view that the current pessimism over China is overdone though the factory output sentiment index is easing, but it's not enough to modify the view on the world's second largest economy.

China government already slashed interest rates five times since last November to boost the lending to corporate firms and enhancing the consumer spending. 

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