HSBC: China Manufacturing Falls to 11-Month Low

China's manufacturing activity contracted to a 11-month low in July, an HSBC survey showed Wednesday, the first evidence of the Asian economic giant losing further momentum in the third quarter.

The British banking giant said its preliminary purchasing managers' index (PMI) hit 47.7 this month, down from a final 48.2 in June and the lowest since August.

The index tracks manufacturing activity in China's factories and workshops and is a closely watched gauge of the health of the economy. A reading below 50 indicates contraction, while anything above signals expansion.

The sluggish reading "suggests a continuous slowdown in manufacturing sectors thanks to weaker new orders and faster destocking", Qu Hongbin, HSBC economist based in Hong Kong, said in a statement announcing the figure.

"This adds more pressure on the labor market," Qu said, adding it "reinforces the need" for policy support from Beijing to stabilize economic growth.

China's economy has been weakening this year, with growth in the April-June period dipping to 7.5 percent, from 7.7 percent in the first quarter and 7.9 percent in October-December.

The latest PMI reading suggests China's growth "has slowed further at the start of the third quarter", Chris Williamson, chief economist at Markit, the financial information company that compiles the data for HSBC, said in a separate statement.

The government, which has set a full-year growth target of 7.5 percent for 2013, has so far refrained from priming the economy with stimulus measures of the kind it took in the wake of the global financial crisis and even last year.

But Premier Li Keqiang reportedly said earlier this month that annual growth of seven percent was a minimum, raising expectations the government may take steps to bolster the economy.

Bank of America Merrill Lynch economists said the deteriorating indicators could prompt supportive measures from Beijing and even expected a rebound after July.

"Sentiment and growth outlook could be improved" after a credit squeeze in the interbank market eased and with the leadership's commitment to delivering this year's growth target and an average 7.0 percent expansion before 2020, Lu Ting and Zhi Xiaojia said in a research note.