China's factory activity surprisingly shrank in March as new orders crumbled, a private survey showed on Tuesday, data that could usher in more stimulus measures from the government.
The HSBC flash Purchasing Managers' Index (PMI) fell to an 11-month low 49.2, from a final reading of 50.7 in February, well below the boom-bust level of 50. A Reuters forecast expected a print of 50.6.
China's Shanghai Composite widened losses to 0.3 percent on the back of the data. The Australian dollar extended losses to $0.7849 from $0.7865 against the U.S. dollar.
"It is a surprise because we had seen a bit of an improvement in February and now its a really big step back," Frederic Neumann, co-head of Asian Economics Research at HSBC, told CNBC Asia's "Squawk Box".
"It really does show that the government has not done enough yet in terms of stimulus. Yes, they have cut interest rates, they have injected liquidity; but the economy is really suffering and so this means three things: more stimulus, more stimulus and more stimulus," he added.
The new orders sub-index fell to a 11-month low of 49.3, while new export orders decreased for a second straight month. The employment sub-index contracted for a 17th straight month, hitting its lowest since the height of the global financial crisis.