Manufacturing activity in China contracted at the sharpest pace in more than six years this month, signaling a worsening gloom plaguing the world's second biggest economy that is set for the lowest growth in two decades this year, bolstering the case for further fiscal and monetary stimulus from the People's Bank of China.
A private manufacturing index for China fell to 47.1 in August, the lowest since March 2009, from 47.8 in July, with a reading below 50 signaling contraction, Markit Economics reported on Friday.
Factories in China cutback output at accelerated rates with new orders including new export bookings falling at a steeper pace in August, pushing the headline factory index to the lowest level in 77 months and resulting in faster job losses.
Chinese factories are struggling amidst sluggishness in demand owing to a global slowdown, a commodity price collapse, lingering weakness in the property market and measures by policymakers to cutback extravagant government spending while industrial overcapacity and strict pollution norms have also hit factories.
"The Caixin Flash China General Manufacturing PMI for August has fallen further from July's two-year low, indicating that the economy is still in the process of bottoming out. But overall, the likelihood of a systemic risk remains under control and the structure of the economy is still improving. There is still pressure on the front of maintaining growth rates, and to realize the goal set for this year the government needs to fine tune fiscal and monetary policies to ensure macroeconomic stability and speed up the structural reform. This will lead the market to confidence and renew the vigour of the economy", the report said.