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A pair of workers push a cart at a factory in Dehua China

Chinese PMI Falls to Lowest Point Since 2009

Sept. 23, 2015
With a Purchasing Managers' Index of 47.0, the lowest figure since March 2009, ‘the decline indicates the nation’s manufacturing industry has reached a crucial stage in the structural transformation process,’ according to economists.

BEIJING — A key measure of manufacturing in the world’s second-largest economy fell to a new six-and-a-half-year low in September, financial publisher Caixin said Wednesday.

The preliminary figure for its Purchasing Managers’ Index (PMI) came in at 47.0, down from August and missing expectations.

The PMI survey is closely watched by investors around the world for clues on the health of the Chinese economy, a crucial driver of global growth, as it is the first regular statistic to be announced for each month.

International stock exchanges have been rocked in recent weeks by concerns about the Chinese economy, which is both a huge buyer of commodities and a vital market in itself, and is also buffeted by global trends.

A PMI result below 50 indicates the manufacturing sector is contracting, while anything above shows expansion. The figure for September was the worst since 44.8 in March 2009, and fell from a final figure of 47.3 in August. It was also below the median forecast of 47.5 in a poll by Bloomberg News.

“The decline indicates the nation’s manufacturing industry has reached a crucial stage in the structural transformation process,” He Fan, chief economist at Caixin Insight Group, said in a statement accompanying the figures. He blamed the weakness mainly on sluggish external demand for Chinese goods and lower export prices.

Chinese authorities are trying to rebalance the economy from one reliant on exports and heavy government investment in infrastructure to one where domestic consumption is the main driver. But data generally regarded as weak in the current third quarter has raised alarm bells over how rapidly the old economy is slowing and whether the new is expanding fast enough to take up the slack.

At the same time, authorities’ heavy-handed intervention to try to shore up prices as a bubble burst on China’s own stock exchanges has raised questions over their economic management and their commitment to market reforms.

‘Downward Risks’

China’s economy expanded 7.3% last year, the weakest pace since 1990, and slowed further to 7.0% in each of the first two quarters this year.

The government has cut interest rates five times since November, and in a single week lowered the Chinese currency’s central rate against the U.S. dollar by nearly 5% in part of efforts to shore up growth. The finance ministry earlier this month also vowed to adopt “stronger” fiscal policies.

Caixin’s He said fiscal expenditures surged in August, suggesting the government had stepped up its support, but the effects would take time to kick in. “Patience may be needed for policies designed to promote stabilization to demonstrate their effectiveness,” he said in the statement.

Nomura economists said they saw “downward risks” to their GDP growth forecast from the weak PMI figures.

A falling new export orders sub-index suggested that “demand — especially external demand — remains sluggish,” they said in a note. Other details in the figures, they added, did “not bode well for future production” and were “possibly pointing (to) severe overcapacity and weak demand.”

Capital Economics analyst Julian Evans-Pritchard was less concerned, arguing that the current pessimism about China was “overdone.”

Although the country still faces “structural drags” on growth including a continued slowdown in property construction, key leading indicators such as fiscal spending and credit growth were showing positive signs, he said.

“We continue to expect a cyclical recovery in economic activity over the coming quarters,” he wrote in a note.

The numbers renewed fears about China’s economy and global growth, but Australia’s new treasurer, Scott Morrison, said the country’s economy remains fundamentally strong and urged his country’s opposition to support a new free trade pact.

“They’re growing at around about 7% and that 7% growth today is worth about 10% a decade ago,” Morrison said in his first press conference in his new role. “They’re growing off a much higher base now. Their economy is in a far stronger position and more diversified position than it was and it has become an economic powerhouse through which we have the only free-trade agreement, as I understand, in the entire G20 of nations.”

By Fran Wang

Copyright Agence France-Presse, 2015

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