Signs of China slowdown add to dim global outlook

SHANGHAI (AP) — Signs that powerhouse China is slowing have spooked global markets and sharpened fears that the world economy will suffer another recession.

The stock market fallout from one small, preliminary survey of Chinese manufacturers far exceeded the data’s importance, analysts said Friday. The world’s No. 2 economy is slowing, as expected, but growth will remain relatively strong, they say.

If nothing else, the global sell-off that began Thursday and continued Friday reflects China’s growing importance for world growth, said Xianfang Ren, chief China economist for IHS Global Insight.

A preliminary reading of HSBC’s index of manufacturing for September, released about a week before the final survey is due out, was at a two-month low of 49.4 and like August’s reading of 49.9 is under 50 — indicating that activity is contracting. An official manufacturing index that surveys more companies is also due about the end of September.

The HSBC survey and weak indicators from other major economies prompted selloffs by global investors already fearful that governments hamstrung by debt crises, inflation and unemployment may be unable to avert a recession.

But the HSBC survey is only a monthly snapshot, ill-suited to indicate long-term trends, said Ren.

It also is heavily weighted toward the export sector, which is bound to be relatively weak given the current global outlook but is not a reliable measure of the broader economy, said CLSA analyst Andy Rothman.

“If you look at other measures of what’s happening in China ... everything is cooling down, but not dramatically, and there’s still strong growth,” Rothman said.

As a major economy that is also expanding at a rapid clip, China’s role in powering world growth is significant, especially for nations such as Australia that are heavily dependent on its voracious demand for the minerals they export. The Conference Board forecasts China to account for about a third of the increase in global GDP this year.

Some worry that China’s economic planners in their zeal to reduce inflation from near three-year highs could overshoot by cooling the economy too much. August’s inflation figure of 6.2 percent, down from 6.5 percent in July, suggests that Beijing’s inflation battle may be yielding results that would allow it greater leeway for policies aimed at keeping growth on track.

A drop in global demand for China’s exports could also wallop its economy, as it did in 2008, though domestic factors such as consumer spending and investment in infrastructure are increasingly driving growth.

“So there is reason to be worried,” said Ren of IHS, noting that overall, the trend is toward a slowdown. “We are seeing more and more downside signs and we are not seeing enough upside signals.”