Aug 21, 2015 09:45 AM

77-Month Low for August's Early Caixin Manufacturing PMI

(Beijing) – Manufacturing activities in China continued to shrink in August, as the preliminary Caixin China Purchasing Managers' Index hit a 77-month low, at 47.1 points.

The final PMI for the sector in July was 47.8, below the 50-point mark that separates growth from contraction.

Figures for components of the index showed that new orders and employment contracted more sharply from the previous month than any other categories. Output also decreased at a faster rate than in July.

The early PMI number shows that "the economy is still in the process of bottoming out," said Dr. He Fan, chief economist and the director of research at Caixin Insight Group, a financial data and analysis platform that complements Caixin Media's news services.

The weakness was partly caused by external factors, including weaker demand from Europe, which was struggling to cope with the Greek debt crisis, and a cheaper currency in some of China's major trading partners including Japan, according to a report co-authored by He and Zhu He, a researcher at Caixin Insight Group.

"But overall, the likelihood of a systemic risk remains under control and the structure of the economy is still improving," the report said. This is mainly because the GDP growth rate has remained at a reasonably high level and the services sector has been strong, it explained.

"The economy could be in the process of bottoming out and may start to rebound within the next few months," the report said.

A recovery can be expected amid a continued loose monetary environment and stronger fiscal stimulus, and because construction will start for many infrastructure projects approved earlier this year, the report said. The recent devaluation of the yuan caused by a new way to calculate the daily fixing rate can also help by encouraging exports, it said.

The main risks to growth for the rest of the year include fluctuations in the stock market and a new wave of potentially destabilizing currency devaluations in emerging economies, the report said.

"There is still pressure on the front of maintaining growth rates," He Fan said. "To realize the goal set for this year, the government needs to fine-tune fiscal and monetary policies to ensure macroeconomic stability and speed up structural reform.

"This will lead the market to confidence and renew the vigor of the economy."

The final Caixin China Manufacturing PMI will be released September 1.

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