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Caixin China Manufacturing PMI Drops to a 15-Month Low in July

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FXI, ASHR fall on indicator news from China

The iShares China Large-Cap ETF (FXI) was down 3.86% at the close of July 27 as the Caixin/Markit Economics report for China indicated weakening industrial output for the month. The Deutsche X-Trackers Harvest CSI 300 China A-Shares ETF (ASHR) also slumped 9.16%. These China-tracking ETFs have yielded -3.58% and 5.24%, respectively, on a year-to-date basis as of July 27, 2015.

July saw China’s stock market crash. FXI is down from its above-$50 levels in May to around $40 currently. The ADRs (American Depository Receipts) of Chinese companies such as China Mobile (CHL), E-Commerce China Dangdang (DANG), Baidu (BIDU), and Alibaba (BABA) have all followed the upsurge and the crash with the broad market. Read Are You Riding China’s Stock Market Roller Coaster? for more background.

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Caixin/Markit PMI at a 15-month low in July

The flash reading for the China Manufacturing PMI came in at a 15-month low of 48.2 in July compared to 49.4 in June. The preliminary reading for the China Manufacturing Output Index stood at 47.3 in July. It was 49.7 in June. The final PMI figures for June will come out on August 3.

Growth in China’s manufacturing output was restricted by a decrease in output, purchases, and new orders. Suppliers’ delivery times lengthened at a faster rate. Moreover, companies maintain relatively subdued growth expectations as demand conditions remain relatively downcast.

Are the current policy measures adequate to help China meet its 2015 growth target?

China’s central bank and regulatory authorities might have used interest rate cuts and an improvement in bank lending as tools to boost economic activity. However, for China to meet its annual growth target, additional policy measures like more rate cuts and banks’ reserve ratio reductions seem inevitable.

China has a growth target of 7% for 2015. The growth rate in the world’s second-largest economy declined from 10.4% in 2010 to 7.7% in 2012. Currently, it’s already at 7%, with its economic outlook still weak.

Let’s take a look at Japan’s industrial sector report, also released by Markit Economics on July 24, in the next part of this series.

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