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 The gloomy figure sent investors fleeing for cover in gold and
bonds, fearing China's sagging economy would translate into slower
global growth and muddy the outlook for the timing of the first U.S.
interest rate hike in nearly a decade.
World markets had already been on edge after China's surprise
devaluation of the yuan last week and a near-collapse in its stock
markets in early summer.
"Uncertainty about China growth is now the main swing factor in
markets," said Tim Condon, an economist at ING Group in Singapore.
"Today's data reinforced the doubts about global growth."
The preliminary Caixin/Markit China Manufacturing Purchasing
Managers' Index (PMI) stood at 47.1 in August, well below a Reuters
poll median of 47.7 and down from July's final 47.8.
It was the worst reading since March 2009, in the depths of the
global financial crisis, and the sixth straight one below the
50-point level, which separates growth in activity from contraction
on a monthly basis.
The downdraft from China is rattling economies of its trade-reliant
Asian neighbors and prompting many Western companies to reduce
investments and look for ways to cut costs.
South Korea, which counts China as its biggest trading partner, said
on Friday its exports slumped nearly 12 percent in the first 20 days
of August from a year ago.
Taiwan reported on Thursday that its export orders in July fell more
than expected, with a 14.1 percent slump in orders from China and
smaller declines from Japan and Europe, leaving the United States as
the lone bright spot.
While a similar factory survey in Japan pointed to a pick-up in
activity there due to stronger domestic demand, policymakers in
Tokyo are keenly aware of the dangers if China slows further.
Japanese Economics Minister Akira Amari said on Friday he expects
China's government to take steps to prevent its economic slowdown
from becoming a global problem.
The flash PMIs are the earliest activity measure to be released on
global economies each month, and are closely followed by investors.
Similar surveys are due to be released in Europe and the United
States later on Friday, and disappointing readings could spark
further market mayhem.
MUDDY WATERS
U.S. stock futures <SPc1> fell sharply after China's PMI report and
most Asian stock markets and the Australian dollar <AUD=D4> extended
early losses. Overnight on Wall Street, the S&P 500 <.SPX> sank to a
more than six-month low on concerns about how China's slowdown would
impact U.S. firms' earnings and global growth.
Analysts still expect the U.S. central bank to raise interest rates
later this year, though minutes from the U.S. Federal Reserve's last
meeting in July showed policymakers discussed China, Greece's debt
crisis and the weak state of the global economy.
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WEAKNESS ACROSS THE BOARD
A detailed breakdown of China's PMI survey showed conditions
deteriorating on almost every level in August. Factory output sank
to a near four-year low as firms laid off more workers, while
domestic and export orders fell at a faster rate than in July.
Following three decades of blistering double-digit economic growth,
Chinese authorities have had limited success in shoring up activity
this year despite four interest rates cuts since November.
Worse, last week's shock 2 percent devaluation in the yuan and a
near-collapse in Chinese shares over the summer that was countered
by a massive stock market rescue do not appear to have calmed
investor jitters.
The yuan has slid nearly 3 percent since its Aug. 11 devaluation, a
fall that some analysts say is too modest to boost Chinese exports,
but notable enough to raise fears of competitive currency
devaluations between governments.
The speed at which China's economy is losing steam has led some
analysts to warn that the government may struggle to meet its
official economic growth target of 7 percent this year if it doesn't
ratchet up policy support. Growth in China's factory output, retail
sales and investment all disappointed in July.
Some economists believe that China's present growth levels could
already be closer to half of the 7 percent official figure reported
for the second quarter.
With China's economic outlook so murky, some firms say it's best to
be cautious and not bet on a turnaround in the near future.
"It's hard to predict what China is doing," Ivan Glasenberg, the
chief executive of global mining and commodities firm Glencore <GLEN.L>
said this week after reporting a slump in first-half earnings.
Glencore is cutting its spending plans for this year as China's
slowdown contributes to sharp falls in commodity prices.
(Reporting by Beijing Newsroom and Koh Gui Qing in BEIJING, Choonsik
Yoo in SEOUL and Stanley White in TOKYO; Editing by Kim Coghill)
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