HSBC's China purchasing managers' index (PMI), a measure of manufacturing activity in the country, declined to 47.5 in August, down from a reading of 49.3 in July and the lowest level since March 2009.
The contraction in output among Chinese manufacturers is largely attributable to their falling incentives to expand production and improve efficiency while the demand outlook on the global market appears so gloomy.
Last year, exports accounted for 30 percent of China's GDP, more than any other country. With the economy still heavily reliant on exports, a recession overseas will inevitably lead to a drop in orders for local manufacturers.
The poor demand forecast has also discouraged local factories from investing in improving their manufacturing technology. While demand wanes and inventories mount, few manufacturers are currently motivated to invest in expensive new equipment or facilities they expect to get little use out of.
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