Index shows manufacturing still declining

The manufacturing sector contracted for the third consecutive month to an 11-month low in July, HSBC said on Wednesday.

The Purchasing Managers' Index, a main gauge of factory output, decreased to 47.7 in July, down from 48.2 in June, a report from HSBC said.

A reading less than 50 indicates contraction in the manufacturing industry, while above 50 shows expansion.

All the sub-indexes of the PMI, including output, new orders, new export and employment, deteriorated. Some of the indicators even decreased at faster speed.

Qu Hongbin, chief economist for China and co-head of Asian Economic Research at HSBC, said that the deepened slowdown in manufacturing may add more pressure on the labor market.

"As the government has recently stressed, to secure the minimum level of growth required to ensure stable employment the flash PMI reinforces the need to introduce additional fine-tuning measures to stabilize growth," Qu said.

Guan Qingyou, deputy head of the Minsheng Securities Research Institute, said that to solve factories' over-capacity problem, the "production squeeze" in the manufacturing sector is accelerating, which may increase joblessness.

"To stabilize growth and employment is much more important at the moment," Guan said.