China hit by factories slump

Hong Kong's blue-chip Hang Seng Index sank 2.26 percent on Wednesday, while Shanghai's composite index lost 2.19 percent. The Shenzhen Composite Index, which tracks stocks on China's second exchange, gave up 0.83 percent amid dire economic data from China's manufacturing industry.

Preliminary figures from financial publisher Caixin's closely watched Purchasing Managers' Index (PMI) came in at 47.0 points for September - the seventh consecutive month of contraction and the worst since March 2009.

The Caixin PMI is closely watched by investors around the world for clues on China's economic health as it is the first regular statistic to be announced for each month. It was below August's result and also missed economists' forecasts. A result below 50 indicates the manufacturing sector is shrinking, while anything above shows expansion.

He Fan, chief economist at Caixin Insight Group, which released the data, said the decline showed manufacturing industry had "reached a crucial stage in the structural transformation process".

In a statement accompanying the PMI figures, he blamed the weakness mainly on sluggish external demand for Chinese goods and lower export prices.

Downturn accelerating?

China is the world's biggest trader in goods, whose manufactured items sell worldwide, so lower demand for its products is a telling sign of the state of global economic health. Slowing production lines need less from commodity-supplying countries, meaning a knock-on effect for economies around the world.

In an analysis, Japan's Nomura Securities said the data did "not bode well for future production" because especially external demand remained sluggish.

The data came a day after the Asian Development Bank became the latest international body to lower its growth forecasts for China, a key driver of the global economy. 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 weak data in the current quarter has raised alarm bells over how rapidly the old economy is slowing and whether the new one is expanding fast enough to pick up the slack.

Capital Economics analyst Julian Evans-Pritchard told news agency AFP the current pessimism about China was "overdone." In spite of "structural drags" on growth, leading indicators such as fiscal spending and credit growth were showing positive signs, he said, adding: "We continue to expect a cyclical recovery in economic activity over the coming quarters."

uhe/pad (AFP, Reuters, dpa)