China's Manufacturing Activity Loses Steam

China’s manufacturing sector revealed signs of contraction this month, as factory activity fell to its lowest point in seven months, several news outlets report. The dip raises new concerns about the strength of the world’s second-largest economy.

The preliminary HSBC China Manufacturing Purchasing Managers' Index for this month fell to 49.6, compared with a final reading of 50.4 in April, according to the Wall Street Journal. The most recent reading is in contractionary territory, as it's a figure below 50; anything over 50 shows growth.

A sub-index measuring overall new orders fell to 49.5, the lowest since September, which suggests that the country’s domestic economy doesn’t have the strength to offset soft external demand, Reuters reports.

"The cooling manufacturing activities in May reflected slower domestic demand and ongoing external headwinds," said Qu Hongbin, chief China economist at HSBC.

The data emerge after slower first-quarter growth and disappointing April statistics for April -- only a few months after a healthy fourth quarter made the possibility of a recovery promising.

GDP growth slipped to 7.7% in the first three months of 2013, from 7.9% in the final quarter of 2012, the Journal notes. Electricity use was up only 3.8% year-to-year in the four months to April. China's official PMI fell to 50.6 in April and could follow HSBC's private index into contractionary territory this month, the newspaper adds.

"The latest survey results raises the possibility that growth in the manufacturing-dominated Chinese economy slowed further in the second quarter," said Markit Economics, which publishes the data with HSBC, in its own analysis.

"The data will also raise concerns about the extent to which overseas sales may be being lost to Japan, where a sharp depreciation of the yen has boosted export growth."