China's manufacturing activity likely contracted at a faster pace in May compared to previous month, as conditions for exporters worsened during the month, the preliminary findings of a survey by HSBC showed.
The so-called "flash" reading of the manufacturing Purchasing Managers' Index (PMI) dropped to 48.7 in May from a final print of 49.3 in April, HSBC said.
A reading below 50 indicates contraction while any reading above that figure implies expansion.
The flash reading is typically based on 85% to 90% of the total responses in the monthly survey.
The seventh successive drop in the widely tracked manufacturing gauge reinforces the need for stimulus to support growth in the world's second largest economy. The manufacturing index stayed below 50 for eight months through March 2009.
“This calls for more aggressive policy easing, as inflation continues to slow,” said Hongbin Qu, chief economist for China at HSBC. “Beijing policy makers have been and will step up easing efforts to stabilize growth, as indicated by a slew of measures to boost liquidity, public housing and infrastructure investment and consumption.”
A sub-index measuring output rose to a seven-month high, following a rebound in new orders in April. But other figures in May's figures were less rosy.
The new orders sub-index fell in May, reflecting an even sharper fall in the new export orders sub-index to 47.8 from April's final figure of 50.2 - pushing it back to within a whisker of March's 47.7 - data from Markit Economics Research, which publishes the index, showed.
"As long as the easing measures filter through, China will secure a soft landing in the coming quarters," said Qu.
The Chinese government PMI hit a 13-month high of 53.3 in April as exports ticked higher although domestic orders showed signs of weakness.
That survey includes more state-owned firms in its results, while the HSBC PMI captures more private firms, which have a more restricted access to credit. The two surveys also have differing methodologies for seasonal adjustment.