Following shrinking order books, higher interest rates and a sullen global economy, China and India’s PMI slithered along. In China, the HSBC PMI fell to 49.3 points in July from 51.6 in June, falling below the 50 mark that divides growth from contraction for the first time in a year as tight monetary policy and weak global demand weighed.

However, a Chinese government PMI showed that the country’s vast manufacturing sector expanded in July, but at its slowest pace in more than two years. The index fell to 50.7 from 50.9 in June.

The HSBC PMI is tilted toward the private sector, which has been hit harder by tightening monetary conditions in China, while the official PMI leans toward measuring large state-owned firms that have better access to bank loans.

Meanwhile India’s factory sector growth slowed down in July for the third month in a row. The HSBC PMI dropped to 53.6, from 55.3 in June, the lowest level since November 2009.

New export order growth in China, the world’s biggest exporter, hit its lowest level in 17 months, the official survey showed while HSBC said new export orders in India fell in July at their fastest pace in 29 months.

A top advisory panel to India’s premier on Monday sharply cut its economic growth forecast this year to 8.2 percent, citing a string of interest rate hikes and global worries.

Last February, the panel projected Asia’s third-largest economy would grow by 9.0 percent in the 12 months to March 2012, in line with the government’s own forecast. Growth was estimated at 8.5 percent last year.

The lower forecast would still make India the world’s second fastest-growing major economy after China, but the country’s longest streak of monetary tightening in a decade has hit industrial output and investment.

Both New Delhi and Beijing have instigated a series of interest rate increases and rises in bank reserve rates to try to combat inflation that rose in June to a three-year high. Last week, India’s central bank hiked interest rates by a surprise 50 basis points, the 11th rise since March 2010, to combat inflation of 9.44 percent — the second highest rate after Russia.

While interest rates in China and India remain high, an Economist survey covering both countries shows the Yuan and Rupee highly undervalued in comparison with the dollar. As America debates raising the country’s US$14.3 trillion borrowing limit today, global economies and their exporters will need to take prudent steps to avoid sinking into a crisis far worse than the 2008 financial slump.