China manufacturing growth slows to a seven-month low

Workers at a factory in China A sustained growth of its manufacturing sector is key to China's economy

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China's manufacturing activity grew at its slowest pace in seven months in June, adding to fears about a slowdown in its economy.

Its official purchasing managers' index (PMI) fell to 50.2 from 50.4 in May, data released on Sunday showed.

There have been fears that a slowdown in markets such as the US and Europe may hurt demand for China's exports.

The PMI is a key indicator of manufacturing activity. Any reading above 50 indicates growth.

"There is no question that China is feeling the impact from Europe, especially in the manufacturing sector," David Carbon of DBS told the BBC.

Meanwhile, on Monday HSBC released a separate survey of manufacturing activity among smaller, private-sector companies in China.

The HSBC purchasing managers' index fell to 48.1 in June, from 48.4 in May.

This is the eighth consecutive month that HSBC PMI has remained below the threshold level of 50.

Policy easing?

Start Quote

As external demand has weakened and domestic demand hasn't shown a meaningful improvement in response to earlier easing measures, growth is likely to be on track for further slowdown”

End Quote Qu Hongbin HSBC

China, the world's second-largest economy, relies heavily on its manufacturing and exports sector to boost growth.

As demand for its goods has fallen from key markets, the pace of growth of its economy has also slowed.

China's economy expanded at an annual rate of 8.1% in the first quarter, the slowest pace in almost three years, and there are fears that growth may slow even more.

As a result, Beijing has been cutting interest rates to try to boost domestic demand to offset the decline in foreign sales.

Last month, China's central bank cut its key interest rates for the first time since 2008.

It lowered the benchmark one-year loan rate by a quarter of a percentage point to 6.31% while deposit rates were cut from 3.5% to 3.25%.

The central bank has also cut the amount of money banks need to hold in reserve in recent months in an attempt to encourage lending.

Analysts said that the latest set of data may force the central bank to introduce fresh measures to boost growth.

"We expect more decisive easing efforts to come through in coming months," said Qu Hongbin, an economist at HSBC.

"As external demand has weakened and domestic demand hasn't shown a meaningful improvement in response to earlier easing measures, growth is likely to be on track for further slowdown."

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