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China Manufacturing PMI Still Heading South, Like Its Stock Market

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FXI, ASHR fall on indicator news from China

The iShares China Large-Cap ETF (FXI) was down 4.5% at the close of September 1. The Caixin/Markit Economics report for China indicated weakening industrial output for the month of August. The Deutsche X-Trackers Harvest CSI 300 China A-Shares ETF (ASHR) also fell 3.77%. These China-tracking ETFs are down 16.70% and 15.83%, respectively, on a year-to-date basis as of September 2, 2015.

July saw China’s stock market crash. August has seen just as much market turbulence. FXI is down from its levels above $50 in May to around $35 currently. The ADRs (American Depositary Receipts) of Chinese companies 58.com (WUBA), 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. For more background, read Are You Riding China’s Stock Market Roller Coaster?

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Caixin/Markit PMI at a post-crisis low in August

The final reading for the Caixin China Manufacturing PMI came in at a post-crisis low of 47.3 in August compared to 47.8 in July. 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 are maintaining 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, in order 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. It’s already at 7%, with its economic outlook still weak.

In the next part of this series, we’ll take a look at Japan’s industrial sector report, also released by Markit Economics on September 1.

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