BEIJING: Chinese manufacturing activity fell into contraction in August, with an official index on Tuesday slumping to a three-year low in the latest sign of a slowdown in the world’s second-largest economy.
The official Purchasing Managers’ Index (PMI) came in at 49.7 last month, the National Bureau of Statistics said in a statement.
The result, which tracks activity in China’s vast factory and workshop sector and considered a key barometer of the nation’s economic health, was worse than July’s 50.0 reading and the first contraction since February.
A figure above 50 signals expansion, while anything below indicates shrinkage.
The result, which was in line with the median estimate of economists by Bloomberg News, is lowest official PMI since August 2012, but was still better than an independent survey sponsored by Chinese media group Caixin.
The Caixin reading for August plunged to a 77-month low of 47.3, down from July’s 47.8, Caixin said in a joint statement with Markit, a financial information services provider that compiled the survey.
The updated result, however, marked a slight improvement over the preliminary figure of 47.1 announced earlier.
The outlook for China’s economy has turned decidedly pessimistic even after gross domestic product (GDP) registered an expansion of 7.0 percent in the April-June quarter, surprising economists on the upside.
Indicators in the current third quarter have worsened as have concerns over the health of China’s economy, leading to turmoil on overseas stock markets as a bubble also deflates on domestic bourses.
“Recent volatilities in global financial markets could weigh down on the real economy, and a pessimistic outlook may become self-fulfilling,” He Fan, chief economist at Caixin Insight Group, said in the release.
China’s economy expanded 7.4 percent last year, its weakest since 1990, and GDP has slowed further this year.
Analysts have said giant explosions last month in the port of Tianjin as well as a military parade set for Thursday in Beijing to commemorate the 70th anniversary of the end of World War II—for which factories have been closed and a public holiday declared—probably weakened manufacturing activity in August.
In a separate statement, the NBS said efforts to control pollution in Beijing, Tianjin and neighboring Hebei province were a factor pushing the PMI lower.
Julian Evans-Pritchard, China economist at Capital Economics, noted that the official PMI weakened in advance of the APEC summit last year in Beijing and before the 2008 Beijing Olympics, “when similar efforts were made to ensure blue skies.”
China’s central bank last week cut its benchmark interest rates for the fifth time since November and also further reduced the amount of cash banks must keep on hand in the latest stimulus aimed at boosting growth.
But ANZ economists Liu Li-Gang and Louis Lam in a research note said more measures were needed, calling for “proactive fiscal policy” and “more financial liberalization.”