China's economy is weakening and the downward trend is accelerating

China's economy is weakening and the downward trend is accelerating China's economic development has further slowed down, and the manufacturing purchasing managers' index in August fell sharply to a nine-month low...

* China's August PMI fell to a nine-month low*

The latest data released by HSBC on the 23rd showed that China's manufacturing purchasing managers' index (PMI) (preview) in August fell to 47.8 from 49.3 in July. This is the 10th consecutive month that China’s PMI has been below 50. A PMI below 50 indicates contraction, while a PMI above 50 indicates expansion.

Qu Hongbin, chief economist of HSBC, pointed out that China's manufacturing industry continues to be impacted by global negative factors, and the pressure on China's exports requires the government to further relax policies and increase investment in infrastructure in the next few months to achieve the policy goals of stabilizing growth and employment.

*The continued decline in PMI indicates economic trouble*

Previously, many analysts expected that the PMI index in August would stabilize or even rise slightly, but the results were disappointing. Yao Wei, China economist at Societe Generale Hong Kong, said the results were "really bad". He said the PMI unexpectedly fell sharply in August, reversing the recovery in July. A decline of this magnitude, with the index below 50, certainly portends trouble.

The Associated Press said that the continued decline of China's PMI showed that the recovery of China's economy will take longer and the strength of the recovery is weaker than originally predicted due to unexpectedly weak import demand in major markets such as Europe and the United States.

*Increase investment to maintain growth and tighten credit to suppress inflation*

In order to slow down the impact of economic weakness in China, especially in Europe and the United States, the Chinese government has lowered interest rates twice since June 1, increased investment in infrastructure, and injected more funds into the economy. However, Chinese authorities are very cautious in easing monetary policy after the country launched a huge stimulus plan in response to the 2008 world financial crisis, which triggered inflation and housing bubbles.

* Economic growth slowed to a three-year low*

China began to tighten credit and investment from 2010 to 2011 to cool down an overheated economy and inflation. Since then, China's economic growth momentum has gradually slowed down, from double-digit growth for many years to 7.6% in the second quarter of this year, the lowest level in the past three years. China expects economic growth this year to be 7.5%.

*The decline in China's exports has also affected Asian economies*

The Wall Street Journal quoted Nomura Securities China economist Zhang Zhiwei as saying that the weakening of China's economy will have a great negative impact on Asia's export-oriented economies South Korea, Japan and Taiwan, because many parts of China's export products come from these economies. China's export growth is slowing down, and the export situation across Asia will be severely challenged in the near future.

Data released by HSBC showed that the export order index in August also dropped to 44.7 from 46.7 in July, a new low in the past three and a half years. The sharp decline in global demand for Chinese products has caused heavy losses to Chinese exporters, and thousands of export companies have gone bankrupt.

JPMorgan Chase said in a report that the sluggish external environment will continue to put pressure on China's export industry. This may be a major risk factor for China.

*Political reform: the key to restricting China's economic development*

Zhang Xin, director of the Asia Research Center and professor of economics at the University of Toledo in Ohio, USA, said that it is no longer time for China's economy to increase government spending to solve insufficient macro demand and tighten money to curb inflation. China's economy no longer has the strength to continue its development momentum. He said that a series of problems are currently restricting China's economic development.

"First, China has not solved the legal system to protect economic development, including the protection of private property rights and intellectual property rights. This resulted in the flight of hundreds of billions of dollars from last year to this year. Second, corruption in China has now become comprehensive, including in the scientific community and academia. If this is the case, the market will not be able to operate well. Third, economic development requires fiscal transparency, citizen participation and the government's responsibility for its actions. "

Professor Zhang Xin said that these problems are thresholds and traps that China, which is currently at a medium level of development, must overcome, and China's current situation exactly reflects the dilemma of falling into this trap. Therefore, fiscal and economic means alone can no longer reverse the situation, and political reforms must be implemented. He emphasized that without political reform, it is impossible for China's economy to continue to maintain rapid growth.

*Business closures and increased unemployment endanger social stability*

China's manufacturing industry has sluggish growth, a large number of companies have closed down due to declining exports, and the economic growth rate has hovered around 7.5%, causing the employment index to be below 50 for six consecutive months. The employment index in August was 47.7.