Chinese factory activity showed signs of stabilization but remained weak overall in June as it contracted for a fourth straight month, leaving the door open for further stimulus, according to a report Tuesday.
The preliminary version of HSBC purchasing managers' index rose to a three-month high of 49.6 for the month from 49.2 in May. The monthly survey of factory purchasing managers is based on a 100-point scale with numbers above 50 indicating expansion.
Manufacturing output held steady as new orders and purchasing activity in China's massive manufacturing sector, which employs tens of millions of workers, rose slightly from the month before.
"On the other hand, manufacturers continued to cut their staff numbers, with the latest reduction the sharpest in over six years," said Annabel Fiddes, an economist at Markit, which conducted the survey. "This suggests that companies have relatively muted growth expectations as demand conditions both at home and abroad remain relatively subdued."
The results indicate that momentum in China's factories is slowing in the current quarter, which Fiddes said "suggests that authorities in Beijing may step up efforts to stimulate growth and job creation" in the world's second-biggest economy for the second half of the year.
China's economic growth fell to 7 percent in the January-March period, the slowest quarterly pace since the end of the global financial crisis in 2009. Policymakers in Beijing have already launched several rounds of stimulus, including cutting interest rates three times in six months and slashing bank reserve requirement ratios to free up money for lending, as they try to keep growth on track for an annual target of 7 percent.
Growth is slowing as China's communist leaders try to wean the economy off of overreliance on trade and industrial investment in favor of a more self-sustaining model based on domestic consumption.
HSBC's survey is based on 85 to 90 percent of responses from more than 420 factories. The final report is due July 1.
