China factory activity contracts in June but at slower pace: HSBC/Markit PMI

[BEIJING] China's factory activity contracted for the fourth straight month in June but at a slower pace than in May, offering some signs that the world's second-largest economy may be slowly levelling out but is still in need of more support measures.

The HSBC/Markit Flash China Manufacturing Purchasing Managers' Index (PMI) edged up to 49.4 from 49.2 in May, but it was below a preliminary reading of 49.6, and remained under the 50 mark which separates contraction from expansion.

After three months of falls, new orders returned to positive territory, but only just with a reading of 50.3, while new export orders also picked up from May.

But factories were forced to discount prices for their products at a faster rate as demand remained sluggish, and firms cut staff levels at the sharpest pace since February 2009. "The final reading of the HSBC China Manufacturing PMI pointed to a further decline in the health of the manufacturing sector in June," said Annabel Fiddes, an economist at Markit. "On the upside, there were some signs of improvement in total new orders and new export business, suggesting demand both at home and abroad is reviving. However, it is likely that more stimulus measures will be required to ensure that the sector can regain growth momentum and to encourage job creation." China's central bank lowered lending rates last weekend for the fourth time since November and trimmed the amount of cash that some banks must hold as reserves, stepping up efforts to support an economy that is headed for its poorest performance in a quarter century.

Saturday's combined easing highlights Beijing's concerns that money isn't flowing to some of the most-needed sectors in the economy and that stubbornly high borrowing costs could fuel bankruptcies and more job losses.

The last time the central bank simultaneously cut interest rates and reserve requirements was at the height of the global financial crisis in late 2008.

The latest move could also be aimed at comforting investors following a more than 20 per cent plunge in the country's stock markets over the last two weeks, some analysts said.

REUTERS