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China’s factory activity lowest since – 2009

China’s manufacturing continued to contract in September, with the Purchasing Managers’ Index (PMI) falling to a new six-and-a-half year low of 47.2. A level below 50 separates expansion from contraction for the economy. Last time the PMI was above 50 was nine months ago.

The outlook was lower than the 47.3 reading in August, but higher than the predicted 47, according to the outlook from Caixin and Markit, issued on Thursday.

Beijing’s official PMI, released separately, improved to 49.8 in September from the previous month’s 49.7.

“The industry has reached a crucial stage in its structural transformation. Tepid demand is a main factor behind the oversupply of manufacturing and why it has not recovered,” Dr. He Fan, Chief Economist at Caixin Insight Group said, commenting on the data.

Firms reported a stronger decline in new orders and further job shedding, according to the report.  The rate of deflation was the sharpest since April.

Business optimism about the year ahead in the service sector fell to one of the lowest levels in the ten-year history of the survey. Only 22 percent of companies expect their business activity levels to be higher in a year’s time with five percent expecting a decline. Last year those expectations were 31 percent and six percent respectively. Nine years ago 55 percent of the companies expected higher activity results with none expecting a decline.

The Chinese government has ramped up efforts to support the slowing economy and an almost 40 percent stock market drop since late June. However, with the real economy cooling, Beijing faces a difficult task to reach its stated aim of seven percent growth in 2015.

The Caixin China Report on General Manufacturing is based on about 90 percent of responses to surveys sent to more than 420 manufacturers. It is an overall measure of the health of China’s manufacturing sector.

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