Manufacturing activity in China contracted for the second month in a row in August, HSBC data showed today, but the bank said a slight pick-up suggested an economic slump was less likely.
The banking giant released the preliminary figures as export-driven China warned of weakening demand for its overseas shipments and pressure from rising costs amid 'an increasingly complicated' global economic environment.
HSBC's preliminary purchasing managers' index rose to 49.8 in August from 49.3 in July - which was the lowest level in 28 months and the first contraction in a year - according to a statement. A reading above 50 shows that the sector is expanding, while a reading below 50 suggests contraction.
The August reading is subject to revision when the bank publishes its final figures on September 1.
The figures showed the cost of raw materials rose at a faster rate this month, complicating Beijing's efforts to rein in inflation in the world's second-largest economy.
New export orders continued to contract in August, HSBC said, amid deepening economic woes in the US and Europe - key buyers of Chinese-made products. But there were signs of slight improvement, it added.
Analysts said that the acceleration in raw material prices could alarm policymakers who have been battling to tame inflation with numerous interest rate hikes and tighter lending restrictions.
Inflation - which Chinese leaders fear could trigger social unrest - hit a more than three-year high of 6.5% in July compared with a year earlier, well above the government's annual target of 4%.
