China factory growth hits 28-month low

China's factory sector grew at its slowest pace in 28 months in June as new orders expanded less quickly, with weaker global demand and tight monetary policy at home pinching production.

Although the moderation in activity did not point to a sharp drop-off in Chinese economic growth for now, the data was slightly worse than forecast and led some analysts to predict China may be less aggressive in tightening monetary policy conditions later this year.

Some market watchers said Beijing could even take selective steps to tackle pressing bottlenecks, such as freeing up more credit to cash-strapped firms.

"This will further depress markets which have been increasingly worried about a hard landing in China," said Ting Lu, an economist at Bank of America-Merrill Lynch in Hong Kong, while arguing that China was more likely facing a soft landing.

"Some policymakers might be more concerned about over-tightening and might consider slightly adjusting their policy stance," he said. For example, he added, some additional increases in banks' reserve ratios (RRR) that have been expected may be put on hold.

The official purchasing managers' index (PMI), designed to provide a snapshot of conditions in China's vast manufacturing sector, fell to 50.9 in June, below expectations for a reading of 51.3 and down from 52 in May, the China Federation of Logistics and Purchasing said on Friday. The 50-point level demarcates expansion from contractions.

A separate PMI survey by HSBC showed growth in overall factory production came close to stalling in June, confirming preliminary findings released last week. Its PMI reading stood at 50.1, with output falling for the first time since July 2010 amid lacklustre demand and power shortages.