Chinese manufacturing activity shrinks further

China
Published:  07 January, 2016

China’s manufacturing sector contracted for the 5th consecutive month in December 2015, leading the country to a deficit budget.

Despite the China’s efforts to boost slowing economic growth, the country's economy grew at its slowest pace for 24 years in 2014 and eased further in 2015.

According to the Caixin Purchasing Managers' Index (PMI), tracking activity in the factory and workshop sector, came in at 48.2 in December, down from 48.6 the previous month.

Over the last few months the Chinese government has released a series of measures to boost growth such as cutting interest rates six times, fast-tracking investment approvals for new building projects and factory plants, and easing restrictions on home buying to boost the sluggish property market as part of a strategy foster domestic consumption and become less export-oriented.

However, weak domestic and international demand has weighed on China's factories, exacerbating the problem of excess capacity, forcing them to cut prices of their goods, reducing profits and adding to deflationary pressures in the economy.

According to analysts, China's economic growth is expected to cool from 7.3% in 2014 to 6.9% in 2015, its slowest pace in 25 years. Growth could ease further to 6.8% in 2016.

European shares fell 3% today (January 7) after trading was suspended on the Chinese markets earlier for the second time this week. During the first 30 minutes of trading, shares in China dropped 7%, triggering a "circuit-breaker" rule which is designed to stop panic selling, making it China's shortest trading day on record.

The slump prompted renewed panic on global markets.

Sources: BBC/Reuters

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