A shock fall in Chinese manufacturing activity has prompted calls for Beijing to unleash more stimulus to support the economy.
New factory orders shrank in May, led by a drop in activity among small and medium-sized businesses which struggled with faltering demand from overseas.
Economists said the country’s property crisis continued to weigh on confidence among households and businesses, as non-manufacturing activity also slowed.
The National Bureau of Statistics (NBS) said its official manufacturing purchasing managers’ index (PMI) fell to 49.5 in May from 50.4 in April. This is below analysts’ forecasts and under the 50 threshold that divides growth from contraction.
Xiangrong Yu, an economist at Citi, said the closely watched survey suggested the world’s second-largest economy was in the grip of a deeper malaise.
“Persistent demand weakness seems to [be] eroding production strength,” he said.
Mr Yu suggested that interest rates should be cut and more stimulus deployed to prop up demand.
“The government has shot multiple arrows again to stabilise the property sector but efforts will likely need to be scaled up,” he added.
Kelvin Lam at Pantheon Macroeconomics said the fallout from China’s debt-fuelled property crisis had cast a shadow over the economy.
The crisis has led to the collapse of Evergrande, once the world’s biggest property developer.
Mr Lam said: “Overall, the faltering property market is weighing down on construction activity so far, and the current property support measures are not enough to have much impact on the PMIs, let alone revive the real estate market.
“We believe policymakers are likely to beef up support at some point as the response from the market has so far been muted.
“Slightly better news is that services are still holding up, but the situation is deteriorating fast as the planned stimulus is either still in the implementing stages or its positive impact is still filtering through.”
Economists have warned that China faces years of slower growth.
The International Monetary Fund (IMF) urged Chinese policymakers this week to brace for an era of austerity to get the country’s debt mountain under control.
While the Washington-based institution said Beijing was likely to enjoy stronger near-term growth as the economy continues to recover from the property crisis, it warned that an ageing population meant growth was likely to be permanently lower going forward.
China’s debts climbed to a new high of 287.8pc of GDP last year, up 13.5 percentage points from the year before.
The IMF expects the Chinese economy to grow by 5pc this year – in line with the country’s growth target – and 4pc in 2025.
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