Chinese manufacturing shrank for a second straight month in September, according to official data released Thursday, showing the headwinds blighting the world's second-largest economy despite some signs the contraction is easing.

Factory output ticked up slightly from the previous month in September, the data showed, but the recovery in the vital sector remained anaemic at a time when the health of China's economy has become a key preoccupation for world markets.

Analysts said the weak data showed the world's second-largest economy continued to slow in the quarter just ended, and added to expectations it would miss the official target of seven percent expansion for the year.

China is the top global trader in goods and its manufactured items sell worldwide, so weak production data is seen not only as a barometer of its own growth but also the state of the global economy.

Beijing's official Purchasing Managers' Index came in at 49.8 last month, slightly up from a reading of 49.7 in August and above the average of 49.7 predicted by a poll of analysts by Bloomberg News. A figure below 50 indicates a contraction.

Chinese stocks were closed for a holiday on Thursday, but other regional markets took heart from the figures, with Tokyo, Sydney and Seoul all notching gains.

Concerns that China -- which accounts for one out of every eight dollars of worldwide GDP -- is slowing more than thought sent world markets into a tailspin in recent weeks as investors fretted about its impact on global growth.

A private manufacturing survey released Thursday by Caixin, which focuses more on smaller companies than the official figures, painted a darker picture of the state of Chinese manufacturers, showing the slowdown accelerated in September for a seventh straight month.

Analysts from ANZ Bank said the sluggish data indicated manufacturing continued to be a drag on the economy, which they estimated grew at 6.4 percent in the third quarter, but predicted that would pick up later in the year.

"Today's data reinforces our projection that China's GDP growth will likely slow... as the industrial sector remains sluggish," they said in a note to clients.

"However, as monetary policy easing and expansionary fiscal policy gradually take effect, we expect GDP growth to modestly rebound to 6.8 percent in the fourth quarter."

Chinese authorities have cut interest rates five times since November and reduced how much cash banks need to hold in reserve in a bid to boost the economy as it moves towards a model driven by domestic consumption rather than exports and government spending.

Julian Evans-Pritchard, an economist at Capital Economics, put the difference between the two PMI readings down to the greater impact looser monetary policy would have on larger companies than smaller ones, which find it harder to access credit.

"Downbeat sentiment is still weighing on the PMIs, but today's better-than-expected readings still support our view that the economy is holding up better than many think," he said.

Source: AFP