Factory activity lowest in 4 months(2)

Qin Hao, deputy general manager of Jiangsu Allyrise Pharmaceutical Co, said, "As the global economic recovery has been much slower than expected, the advantage of our chemical and pharmaceutical products has been weakened and profits have been reduced."

The competition has been tougher when Southeast Asian countries have tried to manufacture the same products but with lower prices, as the cost of materials and labor in these nations is much lower, Qin added

The company has been forced to turn down some orders, as it cannot make any profit from them.

"After half a year waiting without seeing any obvious improvement, we are not very confident about the complete recovery of the export trading industry in the next two years," Qin said.

Lu Zhengwei, chief economist at Industrial Bank, said weakening confidence among enterprises may suggest a further economic slowdown.

Dwindling new orders, increasing financial difficulties and exchange rate appreciation have exerted considerable pressure on manufacturing companies, Lu said.

The National Bureau of Statistics plans to release economic indicators for the second quarter on July 15.

Market observers tried to seek clues to the next step in government policy from a speech President Xi Jinping gave during the weekend in which he said China should no longer evaluate the performance of leaders simply by GDP growth.

Analysts said this may be another sign that the new leaders will be more concerned about the quality of growth rather than the quantity, and speculated that no more aggressive stimulus measures will be announced in the near term.

Fredrik Erixon, director of the European Centre for International Political Economy in Brussels, said the slowdown in economic activity in China has answered a number of issues raised by the new leadership.

"The new leadership has emphasized time and again that the market should play its due role in China's economic development," said Erixon, adding that he has sensed that government intervention in economic activities has been declining.

"China's new leadership has been designing intensive programs for urbanization and reform and they will be rolled out later this year," he said. "These programs will keep China's economy on track if they are properly designed and implemented."

However, Liu Ligang, chief Chinese economist at ANZ Bank, suggested the central bank might take measures to rebuild market confidence.

"The People's Bank of China needs to cut the interest rate by at least 25 basis points to avoid a further slip in the economy," Liu said.