Investors monitoring screens showing stock market movements at a brokerage house in Shanghai. (AFP/Johannes Eisele)

A key indicator of China's manufacturing activity slumped to a 77-month low in August, an independent survey showed Friday, fuelling concerns of further deceleration in the world's second-largest economy.

The preliminary reading of Caixin's Purchasing Manager's Index (PMI) came in at 47.1 this month, the Chinese media group said in a joint statement with Markit, a financial information services provider that compiled the survey.

The figure, which fell from July's final reading of 47.8, was the worst since a reading of 44.8 in March 2009, according to Markit's data.

It was also significantly weaker than the median estimate of 48.2 from a poll of economists by Bloomberg News.

The index, which tracks activity in factories and workshops, is seen as a key barometer of the country's economic health. A figure above 50 signals growth, while anything below indicates contraction.

Caixin took over sponsorship of the PMI survey from British banking giant HSBC last month.

"There is still pressure on the front of maintaining growth rates," He Fan, an economist at Caixin Insight Group, said in the statement.

"To realise 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," added He.

Beijing earlier this year set the annual target for economic growth at "around seven percent".

China's economy, a key driver of global growth, expanded 7.4 percent last year, its weakest since 1990, and has slowed further this year, growing 7.0 percent in each of the first two quarters.

Nomura economists said Friday's PMI data suggested growth momentum had weakened in the July-September period.

"We expect monetary policy easing to continue," they said in a note.

Authorities accept the need to steer China's growth lower to make it more sustainable and driven by consumer demand rather than investment, but have taken stimulatory measures to put a floor under the slowdown.

Chinese stocks -- which have been extremely volatile in recent months -- extended falls after the figures came out, with the benchmark Shanghai Composite Index down 3.04 percent by the break.

- Tianjin blast impact -

Julian Evans-Pritchard, an analyst with research firm Capital Economics, blamed the disappointing August PMI reading on last week's massive explosions in the northern port city of Tianjin, which killed at least 114 people and caused more than a billion dollars in financial losses.

Factory closures in Beijing and surrounding areas to ensure blue skies above the notoriously polluted city for a huge military parade next month commemorating victory over Japan in World War II were another factor, he said in a report.

"We still think the downside risks to short-run growth are now overstated," he said, adding the government "has plenty of policy ammunition" and will not allow growth to slip much further.

In a bid to boost activity, the central bank has cut interest rates four times since November and has also lowered the reserve requirement ratio -- the amount of money banks must put aside -- three times.

It said Wednesday that it has also made $17 billion available to 14 financial institutions to maintain liquidity in the banking system to support growth.

But the People's Bank of China's sudden devaluation of the yuan last week, which fell nearly five percent over a three-day period, has raised concerns China's economy is growing more slowly than thought.

The bank said the cut was part of reforms to make the exchange rate system more market-oriented, although it was widely seen as a move to help stimulate stalling exports by making them more competitive.

The PMI sub-index for new export orders decreased at a faster pace in August, indicating the impact of the yuan's falls was yet to kick in.

"The positive effect of RMB depreciation on exports will more likely to be felt in next year," said Nomura analysts. (++++)

Popular

Bali flights canceled after Lewotobi Laki-laki volcano eruption

Early school a new burden

Many flights to Bali cancelled after East Nusa Tenggara volcano eruption