Manufacturing activity in China contracted for a seventh straight month in May 2012 amid weak underlying demand, underscoring the need for further policy easing in the world's second largest economy.
The HSBC China Manufacturing Purchasing Managers' Index (PMI), a gauge of manufacturing activity, fell to 48.4 in May 2012 from 49.3 in April 2012, said a report by Markit Economics on Friday.
A reading below 50 signals contraction in manufacturing activity from the previous month.
The latest data underscores fears of a deeper than expected slowdown in Asia's largest economy.
The deepening economic downturn in Europe, China's largest export market, is weighing heavily on China's exports.
Companies are cutting back output as Europe's debt woes deepen. Also, domestic demand has eased in China amid the government's aggressive real estate curbs.
The latest data has increased calls for more policy easing in China to fastrack growth amid slowing inflation and a worsening global economic outlook.
China's central bank, which recently lowered the reserve requirement ratio (RRR) for the nation's lenders by 50 basis points recently, is expected to undertake further monetary policy easing measures in the coming months.
"May's final reading confirmed that manufacturing growth slowed further on weakening demand from both global and domestic markets. This points to a continuous slowdown of the real economy and should promote Beijing to step up easing efforts in the coming months", HSBC added.
"On top of monetary easing via additional RRR cuts and one 25 basis points rate cut, Beijing policy makers should allow fiscal measures and private investment to play a bigger role in supporting growth", HSBC added.