China slowdown is more real than we thought! What impact would it have on Malaysia?

By AARON BACK And LIU LI

Manufacturing activity in China falls to a nine-month low, sending another signal that world’s second largest economy continues to slowdown. The WSJ’s Deborah Kan speaks with DJN’s Hong Kong Bureau Chief, Jeffry Ng.

BEIJING—A preliminary gauge of manufacturing activity in China on Thursday sent another warning signal on the state of the world’s second-largest economy.

The preliminary HSBC China Manufacturing Purchasing Managers Index fell to a nine-month low of 47.8 in August, compared with a final reading of 49.3 in July, HSBC HoldingsPLC said.

A reading below 50 indicates contraction of manufacturing activity from the previous month, while one above 50 indicates growth.

The preliminary August reading marks the 10th straight month the index has been in contractionary territory, signaling extended difficulty for manufacturers.

“Chinese producers are still struggling with strong global headwinds,” HSBC chief economist for China Qu Hongbin said in a statement. “To achieve the stated policy goal of stabilizing growth and the jobs market, Beijing must step up policy easing to lift infrastructure investment in the coming months.”

“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.

The fall could stoke concerns over acontinued sharp slowdown in China’s economy

Asian markets, which started the morning higher on optimism that the U.S. Federal Reserve will act to further stimulate the U.S. economy, weakened on the low PMI reading.

Led by a decline in the manufacturing sector following the HSBC preliminary PMI, the benchmark Shanghai Composite Index fell as much as 0.5% to an intraday low of 2097.08, but rose 0.3% to 2112.74 at 0600 GMT, driven by gains in metal companies.

Regional currencies including the Australian dollar and South Korean won both fell against the U.S. dollar.

The subindex for new export orders fell to 44.7, down from 46.7 in July and was the lowest reading since March 2009, when exports were hit by the global financial crisis, indicating that economic woes in the major foreign markets of Europe and the U.S. continue to weigh on China’s exporters.

The employment subindex was unchanged at 47.7 in August, but was below the expansionary threshold of 50 for the sixth consecutive month.

“Anecdotal evidence suggests that an increasing number of coastal enterprises are laying off workers or closing down factories. It is time for Beijing to focus more squarely on the job market,” HSBC economists said in a note.

“Anecdotal evidence suggests that an increasing number of coastal enterprises are laying off workers or closing down factories. It is time for Beijing to focus more squarely on the job market,” HSBC economists said in a note.

The preliminary PMI figure, also called the HSBC Flash China PMI, is based on 85% to 90% of total responses to HSBC’s PMI survey each month, and is issued about one week before the final PMI reading.

A version of this article appeared August 23, 2012, on page A9 in the U.S. edition of The Wall Street Journal, with the headline: Manufacturing Fall Continues in China.

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