China's manufacturing continues to shrink
Manufacturing in China contracted for the 11th month in a row in September, according to a private sector survey of factory managers that indicated the world's second largest economy remains on track for a seventh quarter of slowing growth.
The HSBC Flash China manufacturing purchasing managers' index (PMI) showed activity stabilised in September after hitting a nine-month low in August, with the headline reading ticking up to 47.8 from 47.6 last month.
But while the economy may not have worsened, there were few signs of a fast turnaround. Rather, the PMI, which provides the first glimpse of September's conditions for Chinese industry, pointed to a month in which a slide was halted but not reversed.
September's reading extends the longest period that the PMI has been below 50 - the value that separates contraction from expansion – since HSBC began compiling the survey in 2004.
There was a broad steadying across the sub-indexes in the survey, released today, with the exception of output, which dipped to its lowest level in 10 months.
"China's manufacturing growth is still slowing, but the pace of slowdown is stabilising. Manufacturing activities remain lacklustre, thanks to weak new business flows and a longer than expected destocking process," Qu Hongbin, chief economist for China at HSBC, said in a statement accompanying the survey.
"This is adding more pressure to the labour market and has prompted Beijing to step up easing over the past weeks. The recent easing measures should be working to lead to a modest improvement from Q4 onwards."
China unveiled a series of measures last week to help stabilise export growth, including faster payment of export tax rebates and boosting loans to exporters.
That was on top of a series of approvals for infrastructure projects, two earlier cuts to interest rates, the easing of bank reserve requirements that freed about 1.2 trillion yuan €146.8 billion) for lending and a steady series of liquidity injections into money markets.
Still, purchasing managers in the survey had little cause for premature cheer. A sub-index that measures output fell to 47.0, its lowest level since November 2011.
After spending several months bumping just beneath the crucial 50 mark, the overall PMI index is now at a level rarely seen since the 2008-2009 global financial crisis.
Asian share markets extended losses after the data. Shanghai stocks fell 1.6 per cent to a two-week low, while Australia's big mining stocks - which tend to react to growth expectations in China, their main market - fell more than 1.5 per cent.
Copper futures, which move closely in line with industrial expectations, fell 1 per cent in Asian trade.
The flash, or preliminary, survey offers an early peek at data for September, and suggests economic growth in China is still slack despite what many see as an improvement in the important property sector.
"The good news is it hasn't got any worse, the bad news is it's no better really," said Shane Oliver, head of investment strategy at AMP Capital Investment. "It's telling us Chinese growth is not losing further momentum but recovery remains elusive."