The preliminary Caixin China manufacturing purchasing managers' index, released after 2pm New Zealand time yesterday, showed it had dipped to 47 points in September. Points below 50 indicate activity contraction.
Before yesterday's data from China, jittery investors had shed commodity stocks, US crude oil prices softened and at the close of the New York exchange, the Dow Jones, S&P 500 and tech heavy Nasdaq were down respectively 1.1%, 1.2% and 1.5%.
S&P materials sector, down 1.8%, led the decline for the S&P 500, but the sell off was broad based and all 10 major sectors lower.
The Australian sharemarket yesterday opened more than 1% lower, following a negative lead from overseas markets, and the ripple effect from the Volkswagen emissions scandal.
After the manufacturing data release, the ASX was down 2% while the NZX also slid.
Craigs Investment Partners broker Peter McIntyre said Australian miners were hard hit yesterday. BHP Billiton was down 4%, Rio Tinto down 2.25% and Oceana Gold down almost 3%.
''Commodities have slid off to levels not seen since the 1990s,'' he said.
The New Zealand dollar also weakened against the US, Hong Kong and Canadian counterparts, as well as the euro and British pound, after the data release.
The China concerns pushed commodities to two week lows. Copper prices and industrial metals led losses.
Mr McIntyre said with the lack of inflation globally, which meant low interest rates would be suppressed for longer, investors would be even more reluctant to release cash.
The concern was a sustained commodities slump could then be repeated in agriculture, and into more sectors, he said. He also noted growing unease from analysts around the world about the validity of economic data from China.
In Hong Kong, the MSCI Asia index, the broadest of Asia Pacific shares outside Japan, fell 2% after release of the China data and the offshore Chinese yuan weakened to its lowest level in nearly two weeks against the US greenback.
Chief economist at Caixin Insight Group He Fan said in a statement with the figures, he blamed the weakness mainly on sluggish external demand for Chinese goods and lower export prices.
''The decline indicates the nation's manufacturing industry has reached a crucial stage in the structural transformation process.
''Patience may be needed for policies designed to promote stabilisation to demonstrate their effectiveness,'' he said.
Sentiment at Asia's 79 biggest firms tumbled in the third quarter at record pace, due to growing worries about the economic slowdown in China and the risks it poses to the global outlook, a Thomson Reuters/INSEAD survey showed yesterday.
The 11 point quarterly decline was the steepest since the survey began in 2009, dragging the index to its lowest in almost four years, and showing the extent of damage that a slump in Chinese shares during the quarter had on regional corporate sentiment.
The Thomson Reuters/INSEAD Asian Business Sentiment Index, representing the six month outlook at 79 firms, was 60 in the September quarter, down from 71 in June and 66 a year earlier.
A reading over 50 indicates a positive view.
Shares of Volkswagen suppliers BorgWarner, Honeywell and Delphi Automotive fell after the German car maker admitted to cheating on vehicle emission tests.
BorgWarner shares were down 7.6% at $39.37, while Honeywell fell 1.7% to $96.04 and Delphi lost 3.6% to $74.44.
Additional reporting by Reuters/AAP/AFP
