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DAVID GRAY/David Gray/Reuters

From the FT's Lex blog

Clunk! That was the sound of stocks and commodities around Asia tumbling on the double-whammy of the U.S. Federal Reserve's well-documented gloom and, more unexpectedly, a further fall in Chinese manufacturing activity.

The advance estimate of the September purchasing managers' index put the measure at 49.4 from 49.9 in August. That is now three months below the 50 level that (roughly) denotes the switch between expansion and contraction. This is poor.

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But investors' tendency to draw a causal link between any negative Chinese data and virtually all growth assets, from raw materials to technology stocks, is overdone. The theory goes that if China's manufacturing is slowing, its economy must be cooling more rapidly than thought and thus the one large bright spot in the world economy is dimming.

Layer on to that the growing references to the 2008 market turmoil that did indeed trigger a global economic collapse, including in China, and investors are frightened of a rerun. This is clear in the stock markets, where the Hang Seng has this year underperformed other China-tilted markets such as Australia and Korea and, off 18.3 per cent, even done slightly worse in common currency terms than the crisis-wracked FTSE Eurofirst 300.

However, there are crucial differences this time. In 2008, exports accounted for up to 8 per cent of China's gross domestic product. Now, they make up to 3 per cent, according to HSBC, and exports only contributed very slightly to first-half growth. Inflation appears to have peaked, suggesting monetary policy will not tighten much further.

Domestic demand is strong and growth is expected to hold steady at about 9 per cent. Investors are justifiably sensitive to any signs of a slowdown in China. But this story is not as simple as 2008 repeating itself.

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