Chinese Factory Output Slowdown Slows Down

Markets around the world have seen value boiling off as investors nervous about the slowing of the Chinese economy (which is still enjoying what any other nation would regard as phenomenal growth) sell stocks. The selling of stocks causes prices to fall unless there are other investors snapping them up. A Bear Run is always driven by fear: as investors see prices fall, more people are tempted to sell stock for the best value they can get right now, fuelling the downwards cycle until other investors come in to the market to pick up bargains or macroeconomic indicators improve.

Slowing growth in China means that its demand for raw materials is reduced and since China is a major consumer of such commodities, their prices will fall, hurting exporters such as mining concerns in Australia, for instance. The other side of this coin is that other manufacturing nations will benefit from reduced production costs for their finished products: every cloud has a silver lining.

The most recent Purchasing Managers’ Index (PMI) for Chinese factory output may go some way towards calming investor jitters and so spark a revival in stock market fortunes. The September PMI value came in at 49.8 which means that the sector is still contracting, but it was an improvement over the August value of 49.7 meaning that the rate of contraction has eased – the slowdown is slowing down. A further braking down to 49.6 had been anticipated for September, so the actual figure is significantly better than anticipated. The figure lends support to those who believe that moves by the government to ease the slowing of the Chinese economic juggernaut are paying off.

China has set a growth target of 7% for 2015 – this is twice the projected rate of growth for the global economy. The USA is expected to grow by 3.1%; the UK by 2.7%, Eurozone 1.5% and Japan 1%. Clearly, investors are right to be quaking in their boots – but markets are illogical beasts. If China does hit the target (and many observers think that growth will come in 0.2% or more below target) it will be its slowest rate of expansion seen in the Chinese economy in 25 years – a truly remarkable run of expansion.