China's factory activity fell to the weakest level in eleven months in July amid a continued slide in new orders and faster destocking, preliminary results of a survey by Markit Economics and HSBC revealed Wednesday.
The purchasing managers' index, an indicator of the country's factory sector performance, fell to 47.7 in July from 48.2 in June. An index reading below 50 suggests deterioration in activity.
New orders received by manufacturers fell at a faster pace in July, while the pace of decline in export orders eased, the survey found. The manufacturing output index fell to a nine-month low of 48.2 in July from 48.6 in June.
Employment at manufacturers decreased at faster rate in July, the survey revealed.
The PMI reading suggested "a continuous slowdown in manufacturing sectors thanks to weaker new orders and faster destocking," said Hongbin Qu, Chief China Economist at HSBC. "This adds more pressure on the labour market," he said.
"As Beijing has recently stressed to secure the minimum level of growth required to ensure stable employment, the flash PMI reinforces the need to introduce additional fine-tuning measures to stabilise growth," Hongbin noted.
State media on Tuesday quoted Chinese Premier Li Keqiang as saying that the economy needs at least 7.5 percent growth to maintain labor market stability. In the remarks made at a recent State Council meeting, he said that 7 percent economic growth is the government's bottom line of tolerance.
China's economic growth moderated to 7.5 percent in the second quarter 2013 from 7.7 percent in the first quarter, according to official data.
Chinese authorities have repeatedly indicated that they are unlikely to initiate massive stimulus measures to support economic growth, while making it clear that the government will go ahead with its reforms to rebalance the economy.
In a report released last week, the International Monetary Fund warned that the downside risks to its growth projections for China have increased and that the country must expedite transition to a new growth model, which is more consumption-based and inclusive.
Earlier this month, the IMF lowered its forecasts for China and now expects the economy to grow 7.8 percent this year and by 7.7 percent in 2014. The Asian Development Bank also trimmed the growth forecast for China this month. ADB now projects the economy to expand 7.7 percent this year and 7.5 percent in 2014.
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