China's manufacturing activity continued to contract in May, pointing to persistent weakness in the world's second largest economy that analysts say may prompt more stimulus measures, according to an HSBC survey on Thursday.
The HSBC flash manufacturing purchasing managers' index (PMI) for April stood at 49.1 in May, slightly improved from the 48.9 reading in April but still below the 50-point mark that distinguishes expansion from contraction.
Outputs contracted at the strongest rate in over a year in May, with the sub-index at a 13-month low of 48.4, according to the report.
"The PMI pointed to a further deterioration in operating conditions in April, with production declining for the first time in 2015 so far," noted the report.
Moreover, softer client demand both at home and abroad along with further job cuts indicate that the sector may find it difficult to expand, at least in the near term, as companies tempered production plans in line with weaker demand, the report added.
The news had a muted effect on the stock market, with the benchmark Shanghai Composite Index holding steady in positive territory following the report.
Amid a cooling real estate market and shrinking exports due to uneven global economic recovery, China saw its growth slide to 7 percent in the first quarter, marking the lowest quarterly growth rate since 2009.
Repeatedly highlighting downward pressure on the economy, Chinese authorities have taken measures to arrest the slowdown. The central bank has cut the benchmark interest rate three times since November. It has also dropped banks' reserve requirement ratio twice since February.
The HSBC report noted that deflationary pressure remained relatively strong, leaving plenty of room for authorities to implement further stimulus measures if required.
