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China Slowdown Update: Manufacturing Hits 9-Month Low

The China slump continues. This time, the grim news comes from the manufacturing sector, with preliminary readings for August suggesting yet another contraction—the tenth straight month of falling manufacturing activity.

According to the Wall Street Journal, the Manufacturing Purchasing Managers Index (PMI) fell to 47.8 in August (anything below 50 indicates a contraction from the previous month). If this preliminary figure holds, it would represent a nine month low. In July the PMI was 49.3.

Beijing is surely worried about this data, but the Journal warns us that the impact will also be felt far beyond China’s shores:

“A weaker Chinese economy will weigh on Asia,” said Nomura China economist Zhang Zhiwei. “China is in a decisive position in Asia, and its slowdown will have a very big negative impact on export-oriented countries and regions such as South Korea and Taiwan,” he added.

Many of China’s exports use parts and components from South Korea, Japan and Taiwan. As China’s exports slow, “exports of the entire Asia will face severe challenges in the near future,” Mr. Zhang said.

Regional currencies strongly affected by Chinese demand, such as the Australian dollar and the South Korean won, were down immediately following the release of the PMI data. But from a longer-term perspective, a poorer China is also a more volatile China. For the sake regional stability let’s hope Beijing is able to turn things around.

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  • Jim.

    Economic structures based on market signals and low-leveraged customers are stable.

    Economic structures based on (inevitably flawed) central planning and/or immense leverage are unstable — they will collapse, and that collapse will feed off itself in an enormous catastrophe.

    Postponing and prolonging economic pain isn’t the same as preventing it.

  • Luke Lea

    And, of course, the true figures are likely worse than the official ones. The Party has an interest in keeping confidence up.

  • Luke Lea

    VChina Trade Imbalance Costs 2.7 Million U.S. Jobs: Report

    A $295 billion trade deficit with China resulted in the loss of 2.7 million U.S. jobs in the past decade, with the biggest impact in California’s Silicon Valley, according to a report from the Economic Policy Institute.

    China’s failure to let its currency appreciate while also repressing labor rights and keeping wages down has led to more than 2.1 million lost manufacturing jobs, according to the report released today in Washington. That total includes more than a million jobs in the computer and electronics parts industry. Industries including apparel, textiles and fabricated metal-products lost about 600,000 jobs, according to the report.

    “The onus is on the U.S. and other nations to do something about currency manipulation,” Robert Scott, who wrote the report and is a former economist the University of Maryland, said in an interview.

  • Atanu Maulik

    I would love to see a poorer and more volatile China. That will increase the chances of regime change there, something which is long overdue.

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