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Declining output by China factories recorded over past sixth months

CHINA's economy is deep in slowdown mode as the country's manufacturing output contracted for the sixth consecutive month in August as confirmed by two purchasing manager's indices.

The Caixin-Markit manufacturing PMI fell to 47.3 in August, down from July's 47.8 and hitting the lowest level in six years, while China's official PMI, which covers state-owned enterprises and large companies, recorded 49.7 points. The Caixin reading looks at small- and medium-sized firms.

"The final Caixin China Manufacturing PMI for August continued to retreat, with sub-indices signalling continued weak demand in the markets for goods and factors of production," said Caixin Insight Group economist He Fan.

Total new orders and new export business both declined at sharper rates than in July, and contributed to the most marked contraction of output since November 2011, Caixin-Markit said.

Lower production requirements prompted companies to reduce purchasing at the greatest rate since March 2009, while weaker client demand led to the first rise in inventories of finished goods in August in six months, with companies suggesting that fewer sales had led to an accumulation of inventory.

China's slowdown is having a sharp impact on the country's trade. The total value of China's foreign trade in the first half saw a 6.9 per cent decrease year on year, posing challenges to the sector's operating environment.

Container throughput at the mainland's largest port operator, China Merchants Holdings (International), was up 5.3 per cent in the first half compared to the same period last year as the overseas throughput growth of 20 per cent helped offset decelerating domestic throughput growth of five per cent.

First half results do not reflect the extent of the slowdown in China's economic activity but the third quarter domestic container volumes are expected to show a sharp fall year on year as the stock market meltdown and yuan devaluation caused mounting debts and slower consumer spending.

"The economy faces heightened economic and policy uncertainty at the present time," Goldman Sachs said in a note to customers. "This reflects extreme equity market volatility and more recently the sudden move in the CNY fixing, which has amplified uncertainty about the path of the exchange rate going forward."