A Chinese manufacturing gauge fell to the lowest in more than six years, suggesting the economy will need further policy support to stem a deepening slowdown.
The preliminary Purchasing Managers’ Index from Caixin Media and Markit Economics was at 47.1 for August. That compared with a median estimate of 48.2 and the final reading of 47.8 the previous month. Numbers below 50 indicate contraction.
The release is the first major indicator for August and follows weaker-than-expected data on investment, industrial output, retail sales and exports in July. Policy makers have stepped up efforts to underpin growth, channeling funds to policy banks, in an effort to keep Premier Li Keqiang’s expansion target of about 7 percent this year within reach.
“Stimulus measures haven’t boosted manufacturing yet,” said Shen Jianguang, chief Asia economist at Mizuho Securities Asia Ltd. in Hong Kong. “August and September may be the darkest moments for the economy; a rebound is expected for the fourth quarter when funds channeled to local governments are actually spent.”
Stocks fell, with the Shanghai Composite Index closing 4.3 percent lower. The Australian dollar, seen as a proxy for China due to its commodities shipments to the world’s second-largest economy, also declined.
China’s economy is grappling with industrial overcapacity, the fallout from a downturn in property investment and a volatile stock market. Producer price deflation deepened last month, while consumer inflation remained at about half the government’s target. Bloomberg’s monthly GDP tracker shows 6.6 percent growth in July, down from 6.9 percent in June.
The data was collected from Aug. 12-19, after the People’s Bank of China announced changes to the exchange rate mechanism that triggered the steepest depreciation in two decades.
Along with the currency move, the central bank has sought to revive infrastructure spending by channeling money to policy banks tasked with lending to government-backed projects. It has lowered benchmark interest rates four times since November and cut the amount of money banks must set aside, with economists anticipating further monetary easing this year.
“The stimulus measures so far are not enough,” said Zhao Yang, chief China economist at Nomura Holdings Inc. in Hong Kong. “If there are no fresh pro-growth measures from the government, the economy will continue to weaken.”
China’s stock market boom helped GDP growth in the first half, a support that won’t carry over to the second half, adding downward pressure on the economy, Zhao said. The central government will need to swap more local-government debt with bonds, while the PBOC will need to cut the required reserve ratio or interest rates, Zhao said.
— With assistance by Xiaoqing Pi, and Xin Zhou