BEIJING • Activity in China's factory sector shrank at its fastest rate in at least three years last month as domestic and export orders tumbled, data released yesterday showed, increasing investors' fears that the economy may be lurching toward a hard landing.
Even more worrying was data from China's services sector, the lone bright spot, which showed signs of cooling, a similar business survey said.
Hurt by soft demand, overcapacity and falling investment, the world's second-largest economy has also been hit by plunging share prices and a shock yuan devaluation, in what some have called a "perfect storm" of factors that is rattling global markets, and could strain ties with China's major trading partners.
China's official manufacturing Purchasing Managers' Index (PMI) fell to 49.7 last month, from 50.0 in July, the National Bureau of Statistics said. That was the lowest since August 2012, and below the 50-point mark separating growth from contraction.
New orders - a proxy for domestic and foreign demand - fell to 49.7 last month from July's 49.9. New export orders contracted for an 11th straight month. The official services reading cooled slightly to 53.4, while remaining well in expansion territory, but the private survey PMI fell sharply to 51.5, its lowest level since July last year.
That dragged a composite PMI, combining factory and services readings, to below 50 for the first time since April last year.
The latest figures set off fresh selling. While Chinese shares remained relatively steady, with the Shanghai Composite Index down a modest 1.2 per cent and the CSI300 index almost flat, the pain was felt elsewhere across Asia as well as United States stock futures.
Tokyo dived 3.84 per cent to 18,165.69, Sydney fell 2.12 per cent to 5,096.4 and Seoul gave up 1.40 per cent to close at 1,914.23. The gloomy mood remained in Europe as the pan-regional FTSEurofirst 300 opened down 2.5 per cent after its worst month in four years. London, Frankfurt and Paris were down 2.3 to 2.5 per cent at open.
Traders are now watching for the US jobs report to be released on Friday, which could give a glimpse into the Federal Reserve's decision on an interest rate increase.
Analysts said the bleak readings affirmed bets that China, which has slashed interest rates five times since November, must loosen policy again soon to avert a sharper economic downturn that could weigh on global growth. "We believe further aggressive monetary easing and proactive fiscal policy, along with financial liberalisation, are needed to maintain growth at around 7 per cent," ANZ economists said.
The Chinese authorities have launched their policy loosening campaign to try to put a floor beneath sagging growth. But, its effectiveness has been called into question, with some warning of a "liquidity trap".