China economy to decline as global growth struggles

THE latest China Caixin manufacturing PMI (Purchasing Managers' Index) showed that industrial activity in the world's second largest economy declined to a 6 1/2-year low in September. The preliminary reading registered a value of 47 last month, making it the seventh consecutive month that China has recorded a contraction in manufacturing activity.

It was not too long ago, in 2010, when China was hailed as an emerging force that could rival the economic might of the US. What was often overlooked, however, was that the boom in China back then was fuelled a lot by credit growth.

While the US chose to engage in bond buyback programmes, China relaxed credit restrictions that resulted in a boom in its infrastructure sector. Official data showed that 72 per cent of the funds from this stimulus were directed into infrastructure development.