The country's manufacturing activity further deteriorated this month, prompting analysts to believe the government will launch stimulatory measures, such as fast-tracking investment projects.
The HSBC Flash China Manufacturing Purchasing Managers' Index (PMI) fell to a seven-month low of 48.1, based on data collected from June 11 to 19. The HSBC China Manufacturing PMI was 48.4 in May. A PMI below 50 indicates contracting manufacturing activity, while a reading above 50 indicates expansion.
The Shanghai Stock Exchange Composite Index fell 1.4 per cent to 2,260.88 yesterday, while the Hang Seng Index fell 253.78 points, or 1.3 per cent, to 19,265.07.
'China's manufacturing sector continued to slow in June,' said HSBC's China chief economist, Qu Hongbin, said. 'Exports are likely to decelerate in the coming months. The sharp fall in prices and moderation of new orders suggest weak domestic demand, posing destocking pressures for Chinese manufacturers. All these will likely weigh on the jobs market. As such, we expect more decisive policy stimulus to reverse the growth slowdown.'
'The government will have more focus on investment in infrastructure and manufacturing to maintain economic growth,' said Tse Kwok Leung, head of economic research at Bank of China (Hong Kong).
The economy had hit the bottom in the second quarter and would rebound in the third, Tse predicted.
'Growth can still be 8 per cent for the whole of 2012. In this global economic environment, it will be very good to maintain an 8 per cent growth rate,' he said.