With HSBC’s initial purchasing manager’s Index for Chinese Manufacturing figures falling from 49.3 to 47.8 in July, China’s woes with shrinking factory activity has worsened – and has dropped to a nine month low.
Mark Williams, Chief Asia economist for Capital Economics, furnishes reasons for this drop, in saying, “There is scarcely anything positive in the breakdown to report. Demand appears to have slowed even more abruptly. That suggests output could slow even further. And it’s worth noting that Chinese firms are not the only ones being hit: the July export data for Korea, Taiwan and Japan were all terrible too.”
Experts also attribute China, being the world’s second largest economy, to have been hit hard by the recession in the euro zone as austerity measures have reduced the demand for Chinese exports. To make matters worse, the U.S economy has also slowed down, and this in turn, has resulted in a drop in demand for these exports as well.
The latest reading, which contained data obtained from surveying manufacturing executives, was dismal as every aspect that they were questioned on such as exports, production, employment and backlogs of orders were diminishing rather than showing any signs of growth.
However, the nation’s central bank, the People’s Bank of China, has already responded to this manufacturing crisis by adding 146 billion Yuan into the economy, and has announced another injection of 220 billion Yuan shortly.
Economists believe that China’s monetary policy will be loosened in the coming days including how much banks can hold in reserve so as to jumpstart the economy that is moving at a snail’s pace.