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.