China factory activity falls to weakest in two years

Manufacturers have been cutting production at the fastest pace since November 2011

Factory activity in the world's second largest economy, China, shrank the most in two years in July as new orders fell more than expected.

The private Caixin/Markit manufacturing purchasing managers' index (PMI) dropped to 47.8 in July from 49.4 in the previous month.

It is worse than a preliminary reading of 48.2 and is the fifth consecutive month of contraction in the sector.

A figure below 50 shows contraction in the sector and one above means growth.

The reading was the lowest since July 2013, when it fell to 47.7.

The disappointing results, which focus on small to mid-sized companies, come after the official survey over the weekend also showed signs of a slowing Chinese economy.

The official PMI, which focuses on larger companies, fell to 50 in July from 50.2 in June as growth stalled unexpectedly.

Deteriorating sector

Bernard Aw, market strategist at trading firm IG said the data was not surprising and reinforced the view that there will be further weakness in the economy.

"I feel that the macro outlook of China - which is probably slowing further - has already been considered by the market," he said in a note on Monday.

The deterioration in China's vast manufacturing industry comes despite the government recently intervening heavily to boost the economy and stock market.

The central bank has already cut interest rates four times since November. It has also continuously eased lending rules for banks in aggressive measures to spur spending.

But manufacturers continued to cut production levels, with July seeing the fastest rate of contraction since November 2011.

Factory production - which contributes to the overall manufacturing activity reading- was at 47.1 in July, shrinking for the third month in a row.