China's manufacturing activity contracted for the third consecutive month in July, with a preliminary indicator of the sector falling to an 11-month low.

The HSBC Flash China Manufacturing Purchasing Managers' Index, the earliest available indication of operating conditions at private and export-oriented industrial companies, settled at 47.7 this month, down from June's final reading of 48.2.

A reading below 50 indicates contraction.

The component indexes showed that production was at a nine-month low of 48.2 in July, down from 48.6 a month earlier. New orders lost one point to 46.6, and stock of finished goods retreated to 48.6 from 50.7.

Qu Hongbin, chief economist for China and co-head of Asian Economic Research at HSBC, said the lower reading suggested a continuous slowdown in the manufacturing sector due to weaker new orders and faster destocking.

"This adds more pressure on the labor market," Qu said. "As China recently stressed the need 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."

China's economy expanded 7.5 percent from a year earlier in the second quarter, slowing further from the pace of 7.7 percent in the first three months, reflecting a weakening recovery that may put the government's reform efforts to the test.

In a July 9 speech, Premier Li Keqiang reiterated the 7.5 percent growth target for this year and stressed employment needed to be maintained.

Zhu Haibin, chief economist for China at JPMorgan, said the flash index continued to highlight the manufacturing sector's sluggish environment.

"While the continuous slowdown in the economy has not triggered change in policy stance, the tolerance of slower growth is not unlimited," Zhu said.

He expected third-quarter growth to be 7.4 percent with 7 percent for the fourth quarter, which would give a rate of 7.4 percent for the year. "The authorities should take measures such as higher credit growth, more efforts to restrain speculative financial inflows, and faster technological innovations and industry upgrade to support growth," Zhu said.

Chang Jian, an economist at Barclays, also said the weaker-than-expected PMI reading may trigger more policy changes.

"We believe the policy focus has already shifted to 'stabilizing growth with the aim of better utilizing existing liquidity and fiscal funds," Chang said. "It is based on our view that the government would become more concerned as growth threatens to slide below 7.5 percent in the third quarter."

The HSBC Flash China Manufacturing PMI is an estimate of the final data to be released on August 1. It is based on approximately 85 to 90 percent of total PMI survey responses.

The official Purchasing Managers' Index by the Federation of Logistics and Purchasing, weighted toward state-owned enterprises, posted 50.1 in June, the slowest in four months.