China factory gauge reaches new low in September

BEIJING--A preliminary measure of Chinese factory output in September was the lowest since the financial crisis, adding to a parade of weak data that is increasingly eroding hopes that China's slowdown would stabilize in the second half.
Chinese stock markets fell on the news, which follows weak readings in August for fixed-asset investment, industrial production and exports as Beijing struggles to meet its growth target of about 7% this year, the slowest pace in 25 years.
"New export orders have really collapsed. It means global trade is facing headwinds, and even China can't escape that," said HSBC economist Frederic Neumann. "It's not so bad that we need to hit the alarm button, but the decline in the economy is evident."

The preliminary Caixin China Manufacturing Purchasing Managers' Index, a gauge of nationwide manufacturing activity, fell to 47.0 in September, compared with a final reading of 47.3 in August, Caixin Media Co. and research firm Markit said Wednesday. The reading was the lowest since March 2009, when China was grappling with the global financial crisis.
A reading above 50 indicates expansion from the previous month, while one below 50 indicates contraction.
The Shanghai Composite Index was down around 2% in midday trading.
China has announced a flurry of infrastructure plans in recent months, browbeaten local officials to spend their full budgets and tried to ease funding constraints for highway, rail and other projects. The infrastructure subindex of fixed-asset investment data in August grew 19.9% year-over-year in August compared with 16.4% in July.
But this hasn't been enough to counteract a sharp and protracted fall in real-estate investment. And local-government spending remains weak given Beijing's effort to contain shadow banking and fight corruption.
"The situation is definitely worsening in September," said Zhang Yiping, an economist with China Merchants Securities. "China's economy is facing more downward pressure now."
Subindexes for output, new orders, new export orders, employment, prices and inventory in the Caixin data all weakened, suggesting that companies covered by the survey are struggling across the board. "The corporate sector is pretty pessimistic on the outlook for future demand," said HSBC economist Ma Xiaoping. "All those government ministers are tasked to do what they can to try and revive the economy, but all those measures are not very effective," she added.
Retail spending, however, has remained strong, growing by a better-than-expected 10.8% in August from a year earlier compared with July's 10.5%.
The weak outlook for the nation's factories puts more pressure on the government to step up fiscal and monetary stimulus between now and the end of the year to reach its target. Economists said China has more leeway to reduce interest rates given that the U.S. Federal Reserve held off on an anticipated rate increase. And it will likely cut required bank reserves to stem an outflow of capital seeking higher returns abroad.

"I think they still have plenty of room to ease monetary policy," said BBVA Research economist Xia Le. "I think we'll see it stabilize in the fourth quarter."