The plunging share price within the Australian mining sector dragged the share market to its lowest figure in two years. The ASX fell below the 5000-point mark as poor performance from the Chinese manufacturing sector was felt through slowing demand for commodities and the resources necessary to produce them.

The S&P/ ASX 200 index dropped 2.07 per cent to 4998.1 points, its lowest since June 2013.

The All Ordinaries index fell 1.92 per cent (98.4 points) to 5032.4.

Futures contracts share price index for December traded at 4989 (108 points lower) with only 34,911 contracts traded.

Heavy falls on US and European markets overnight saw the local market drop more than 1 per cent.

The gloom and doom was blamed on the release of key manufacturing figures in China. The manufacturing sector is contracting, posting  September activity figures lower than at any time in the previous six and a half years.

The big four banks dropped an average of 1.7 per cent of their share price. While mining giants Rio Tinto and BHP Billiton felt the full force of the plunge – seeing 2.5 per cent wiped off their share price.

A slowdown in the Chinese manufacturing sector had been expected. But the figures posted were worse than economists had feared.

The Federal Reserve had hinted one of the reasons the Chinese government refused to raise interest rates last week may be because of the sector contraction.

The preliminary Caixin/Markit index (a survey of factory purchasing managers) fell from 47.3 in August to 47.0 in September. Numbers below 50, on the 100 point scale, indicate a contraction.

Analysts believe temporary factory closures and a two day holiday in early September may have contributed to the sluggish activity.

Julia Wang, an economist with HSBC Greater China, said, “Today’s data highlights the considerable headwinds to growth from soft global demand.”

These latest figures will increase the pressure on communist leaders to prevent further falling growth. Economists believe government spending needs to be increased to keep up with service industries, if the economy is to have any hope of achieving its growth target of 7 per cent.

He Fan, chief economist of Caixin Insight Group, said, “The decline indicates the nation’s manufacturing industry has reached a crucial stage in the structural transformation process.”

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