CHINA'S manufacturing activity weakened in June for the second consecutive month, the latest evidence of uncertainties in the world's second-largest economy.

The official Purchasing Managers' Index, a comprehensive gauge of operating conditions in China's state-owned industrial companies, retreated to 50.1 last month, the China Federation of Logistics and Purchasing said this morning. The pace, the slowest in four months, slipped from May's 50.8 and April's 50.6.

A reading above 50 means expansion, and June was the ninth consecutive month in which the index was above this level.

Zhang Liqun, an economist at the State Council's Development Research Center, said the slowdown in manufacturing indicated downward risks for China's economy.

"Almost all major component indices fell in June, indicating pressure for China's future economic growth," Zhang said. "The headline index has just barely managed to stay above the demarcation line of expansion and contraction."

The component indices showed that new orders dropped 1.4 points from a month earlier to 50.4, production decreased 1.3 points to 52, and employment lost 0.1 point to 48.7.

Meanwhile, the HSBC Purchasing Managers' Index, which gauges conditions for largely private and export-oriented manufacturers, posted 48.2 in June, down from 49.2 in May and signaling deterioration of business conditions.

Qu Hongbin, chief economist for China at HSBC, said falling orders and rising inventories hurt Chinese manufacturers in June.

"The recent cash crunch in the interbank market is likely to slow expansion of off-balance-sheet lending, further exacerbating funding conditions for smaller enterprises," Qu said.
Qu said since China appears to be refraining from using stimulus measures, the ongoing slowdown is likely to continue in the coming months.

China's gross domestic product expanded 7.7 percent in the first three months, slowing from 7.9 percent in 2012's final quarter and falling short of expectations of a mild economic recovery in China.

The International Monetary Fund last month lowered its projection of China's economic growth for this year from 8 percent to 7.75 percent. The weaker-than-expected economic growth in China has triggered calls for restrictive policies to be lifted, especially in recent months as inflation eased.