After adjusting for seasonal factors, the HSBC Purchasing Managers' Index (PMI) posted an eleven-month low of 47.7 in July, down from 48.2 in June, signaling a deterioration of business conditions for the third consecutive month, a company report said Thursday.
According to the figures, the production levels of Chinese manufacturers declined for the second month in a row in July. The rate of contraction quickened slightly, but remained modest overall.
The report said lower output was driven by a further decline in new business in both domestic and international markets, with the sharpest net fall of new orders in 11 months. New export orders, in contrast, fell at a reduced pace, though they have now declined for four months in a row.
Evidence indicated deteriorating market conditions had led to reduced client demand. Exporters reported that new sales to Europe, Southeast Asia and the United States were all lower compared to June levels.
Payroll numbers were cut for the fourth successive month in July, with the rate of job shedding the quickest since March 2009. The reduction was due to a combination of employee resignations and company downsizing.
On the price front, the report said that cost pressures continued to ease. Average input costs fell at the slowest pace in four months but still at a marked pace overall as imported goods were reported to be lower in price.
Reduced operating costs were passed on to clients through a fall in output charges, while average tariffs have now decreased for five months in a row, though the pace of discounting eased since June and was the slowest recorded since March.
Commenting on the China Manufacturing PMI, Hongbin Qu, Chief Economist, China & Co-Head of Asian Economic Research at HSBC, said that with weak demand from both domestic and external markets, the cooling manufacturing sector continued to weigh on employment.
Yet this, plus the recent weaker data, has prompted Beijing to introduce more fine-tuning measures, from tax breaks for small companies to increased spending on public housing, railway, energy saving and IT infrastructure areas.
"These targeted measures should boost confidence and reduce downside risks to growth," Qu said