Further weakness in China's vast manufacturing sector, which has exacerbated concerns over the health of the world's second biggest economy, will make it harder for the government to resist calls to ease its policy stance, economists tell CNBC.
The flash HSBC Purchasing Managers' Index (PMI), an early indicator of Chinese factory activity, fell to 48.3 in June from a final reading of 49.2 in May, moving even further away from the 50 mark, which separates expansion from contraction.
Louis Kuijs, chief China economist at RBS, said the weakness is quite broad-based with a dramatic fall in new export orders, which also reflects domestic weakness.
"This sluggishness will test the resolve of the government as it tries to maintain its macroeconomic policy stance, because senior leaders have recently reconfirmed the paradigm of reform over stimulus, but if we in the coming months get more indication of growth slowing down further, then that resolve, that stance, will be tested," Kuijs said on Thursday.
China June Flash HSBC PMI Falls to 9-Month Low
Alistair Chan, economist at Moody's Analytics backed that sentiment, saying the manufacturing sector is still suffering from weak global growth and a lack of stimulus, which points to slower economic growth in the second quarter.
"We expect second quarter GDP (gross domestic product) to be another deceleration, possibly to 7.3 percent year on year down from 7.7 percent in the first quarter," Chan said. "If conditions deteriorate further in the third quarter, the government may be compelled to cut interest rates, but it is resisting doing so for now."
Rob Subbaraman, chief Asia economist at Nomura said the large drop in new export orders in particular, was more of a concern, highlighting that global growth is not that strong.
"China is one of the world's biggest manufacturers - it's a sign that China's economy is continuing to slow down and it does create more challenges for policymakers," Subbaraman said.