The preliminary Caixin/Markit China Manufacturing Purchasing Managers’ Index (PMI) stood at 47.1 in August, well below a Reuters poll median of 47.7 and down from July’s final 47.8.
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A reading above 50 indicates expanding activity and one below 50 signals contraction.
“Due to uncertainties about where China’s economy is going, what Beijing will do [in terms of monetary policy] and how much the impact it will have on the global market, anything related to China worries is sold”, the Guardian quoted Daiwa Securities strategist Takuya Takahashi as saying.
The Caixin flash PMI is the earliest economic measure of the Chinese economy to be released each month and is closely watched for clues on how growth is faring.
Gross domestic product dipped to 7% in the second quarter, and economists expect the figure to trend lower over the next few years.
The survey found output, new export orders and employment all declined at faster rates than in July.
The single currency rose to its highest level since March 2014 versus the Australian dollar at 1.5464.
Fears over China’s weakening economy also wreaked havoc on Wall Street, where the Dow Jones, Nasdaq and S&P 500 indices all closed 2% lower.
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 pan-European FTSEurofirst 300 was down 1.6 percent at 1,453.62 by 0703 GMT, hitting its lowest level since January and set for its biggest weekly fall of the year.
In London, European shares fell sharply on Friday, tracking a drop in Asian equity markets and U.S. stock futures after a survey showed Chinese factories contracted at their fastest pace since the global financial crisis in 2009.
To worsen matters, Chinese financial markets have suffered unprecedented turbulence lately, further denting investor and consumer confidence. If authorities allow this support to be breached, it’s likely to be taken as a negative for markets already on edge about the situation in China.
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The weakness was partly caused by external factors, including weaker demand from Europe, which was struggling to cope with the Greek debt crisis, and a cheaper currency in some of China’s major trading partners including Japan, according to a report co-authored by He and Zhu He, a researcher at Caixin Insight Group.
