Chinese Manufacturing Slows: What Investors Need to Know

What's happening in the headlines can affect you as an investor. Here's what's going on, what you need to know, and what you should do.

The cold, hard facts
The Financial Times is reporting that Chinese manufacturing activity has slowed (free registration required to view) for the first time in nearly three years, contributing to already significant fears about the health of the global economy.

Some context
The Chinese government released data Thursday that shows that the official purchasing managers' index, or PMI, fell to 49 in November, down from 50.4 in October. A reading of less than 50 means the manufacturing sector has contracted. A fall of some sort was expected, but not this much. It marks the first decline in the PMI since February 2009.

The release of this data comes on the heels of another rare Chinese economic event. Yesterday, the central bank began a new round of monetary easing -- cutting the reserve ratio, or RRR, for banks for the first time in three years.

"The markets have been handed a powerful one-two combo," Alistair Thornton, China analyst at IHS Global Insight, told the Financial Times, "in the form of a shocking PMI print and an aggressive RRR cut. The message is clear: The economy is slowing much faster than expected and the government has stepped into the ring."

What you need to know
But China's not supposed to slow down. Its economy is the great financial messiah that, no matter how dark and dismal the rest of the world economy gets, can be counted on to forever forge ahead and carry the world on its broad shoulders.

Sorry, nothing lasts forever. Even China, the world's factory, needs other countries to sell its wares to. And with the world economy as fragile and fearful as it is, that's not happening like it used to. But the news isn't all bad. China's economy is relatively still powering along at blockbuster levels. GDP will still grow by 9.3% this year, and an estimated 8% to 8.5% next year.

And yesterday, global equity markets had their best three-day run since 2009. The S&P 500 (INDEX: ^GSPC) closed the day up 4.3%. The Dow Jones Industrial Average (INDEX: ^DJI) was slightly behind but still posted an astonishing 4.2% gain on the day. Britain's FTSE All-World has risen 7.1% so far this week. And an employment report by paycheck processor ADP (NAS: ADP) is showing the strongest private-sector jobs growth in 11 months, at 206,000.

At The Motley Fool, our advice in times of potential financial turmoil is simple: Don't have money in the market you're going to need over the next three to five years, keep an eye on the fundamentals of the companies you're invested in, and stay calm. Like us, you're in it for the long term.

Keep track of what's happening with the stocks and indices mentioned here by adding them to My Watchlist, a free service of The Motley Fool that lets you easily keep up with all the companies on your investing radar.

At the time thisarticle was published Fool contributor John Grgurich loves the smell of newsprint in the morning, but he owns no shares of any of the companies mentioned above. Motley Fool newsletter services have recommended buying shares of Automatic Data Processing. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a scintillating disclosure policy.

Copyright © 1995 - 2011 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.