BEIJING: China's manufacturing activity shrank more than first reported in May, HSBC said Monday, confirming the first contraction in seven months.

The British banking giant's final purchasing managers' index (PMI) reading for May came in at 49.2, the bank said in a press release, the lowest for eight months and worse than the preliminary 49.6 announced on May 23.

A reading below 50 indicates contraction in the sector.

The HSBC and central government PMIs are both widely watched indicators of the health of the Chinese economy.

HSBC's index stood at 50.4 in April and May's final figure was the worst since the 47.9 recorded in September.

The result was in stark contrast to the Chinese government's PMI result for May, which came in at 50.8, better than April's 50.6, the National Bureau of Statistics said Saturday.

Qu Hongbin, HSBC chief economist for China, said in the bank's release that its final PMI “suggests a marginal weakening of manufacturing activities towards the end of May, thanks to deteriorating domestic demand conditions”.

He added: “With persisting external headwinds, Beijing needs to boost domestic demand to avoid a further deceleration of manufacturing output growth and its negative impact on the labour market.”

Total new orders declined for the first time since September, with new export orders falling for the second month in a row, led by a contraction in demand from the United States, some survey respondents said.

Expectations that China's economy was poised to accelerate in 2013 after showing strength at the end of last year have so far been dashed.

China's economy, the world's second largest, expanded 7.8 per cent in 2012, its worst result in 13 years.

The government in April announced a surprisingly weak economic growth rate of 7.7 per cent for the first quarter.

The International Monetary Fund (IMF) last week cut its 2013 growth forecast for China to “around 7.75 per cent”, while Beijing in March kept its growth target for 2013 at 7.5 per cent, unchanged from last year.

Shen Jianguang, a Hong Kong-based economist with Mizuho Securities, said lukewarm May data including shipping demand, electricity output and coal inventory – a major source of energy in China – suggested economic momentum was slack.

“An economic rebound in the second half is not yet guaranteed...an expansionary fiscal policy is very much needed,” he said in a research note, predicting project approvals will pick up in the rest of the year.

HSBC's PMI poll, which was conducted by the financial information service provider Markit and published by the bank, focuses more on the smaller enterprises than the government survey does.

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