Beijing, September 23

Chinese factory activity shrank at its fastest pace in six and a half years in September, data showed today, the latest in a litany of bad news undermining hopes of an uptick in the world’s second-largest economy.

The news sent Chinese stock markets down and will come as a further worry to global investors already fretting about the spillover effects of China’s slowdown.

It also comes a day after the Asian Development Bank became the latest international body to lower its growth forecasts for China, a key driver of the global economy. Preliminary figures from financial publisher Caixin’s closely watched Purchasing Managers’ Index (PMI) showed manufacturing had slowed for the seventh consecutive month.

The details do ‘not bode well for future production’ said economists at Nomura. “Demand — specially external demand — remains sluggish.”

China is world’s biggest trader in goods, whose manufactured items sell worldwide, so lower demand for its products is a telling sign of the state of global economic health. Slowing production lines need less from commodity-supplying countries, meaning a knock-on effect for economies around the world.

Chinese authorities are trying to rebalance the economy — which accounts for one out of every eight dollars of worldwide GDP — from one reliant on exports and heavy government investment in infrastructure to one where domestic consumption is the main driver.

But weak data in the current quarter has raised alarm bells over how rapidly the old economy is slowing and whether the new one is expanding fast enough to take up the slack. The Caixin PMI is closely watched by investors around the world for clues on China’s economic health as it is the first regular statistic to be announced for each month.

The preliminary figure of 47 was seventh consecutive month of contraction and the worst since March 2009, in depths of global financial crisis. It was below August’s result and also missed economists’ forecasts according to Bloomberg News. A result below 50 indicates the manufacturing sector is shrinking, while anything above shows expansion.