By WILLIAM KAZER
BEIJING—A preliminary gauge of China’s manufacturing activity showed more weakness in June and appeared to build a case for fresh stimulus measures to spur growth in the world’s second biggest economy.
initial or “flash” measure of manufacturing also pointed to weakness in the months ahead as its barometer of new manufacturing orders, particularly export orders, showed further weakening amid a lingering global economic slowdown.
“China’s manufacturing sector continued to slow in June,” HSBC Chief Economist for China Qu Hongbin said in a statement Thursday, though he noted that the pace had eased slightly.
The HSBC China Manufacturing Purchasing Managers Index fell to 48.1 in June compared with a final reading of 48.4 in May. It was the eighth straight month of a reading below 50, which indicates contraction from the previous month. Anything above that indicates growth.
The drop was mainly driven by a further deterioration in new export orders, which fell by 2.6 points to 45.9 in June—the lowest reading since March 2009. Total new orders also slid to a seven-month low of 46.8 in June compared with 47.9 in May.
HSBC said China faces continued weakness in its key export markets, noting that the European debt crisis is still far from over while the U.S. is hampered by slower employment data and consumer spending growth.
China has already turned to an array of measures to boost growth, speeding up approvals on big projects, offering tax breaks and extending subsidies to promote consumer spending.
In June, Beijing used its big monetary weapon—a cut in benchmark interest rates—after making more money available for banks to lend by cutting their reserve requirement ratio three times since last November.
“There should be [another] cut in interest rates and in the bank reserve ratio in July,” said Sheng Hongqing, senior economist at China Everbright Bank
. “The export situation is very difficult.”
Meanwhile, HSBC pointed to less than robust signs on the domestic economic front as well.
It said that domestic demand didn’t see any meaningful improvement in June, with a rise in inventories of finished goods. Prices were also suggesting deflation, rather than inflation, due to weak demand.
“The sharp fall of prices and moderation of new orders suggest weak domestic demand, posing destocking pressures for Chinese manufacturers,” HSBC’s Mr. Qu said, adding this will weigh on the jobs market.
The preliminary China PMI figure, also called the HSBC Flash China PMI, is based on 85% to 90% of total responses to HSBC’s PMI survey each month, and is issued about one week before the final PMI reading.
—Liyan Qi and Grace Zhu contributed to the story.
Write to William Kazer at email@example.com