China factory activity down to lower than expected: survey

China's factory activity is down to lower levels than initially estimated in July, shrinking the most in two years as new orders fell.

Fears of a full-blown market crash has added to worries of policymakers in Beijing, with many analysts expecting authorities to announce additional support measures within weeks.

The development has dashed hopes of the world's second-largest economy steadying, revealed a private survey report released today.

The report follows a downbeat official survey on Saturday that pointed to stagnant growth at manufacturing firms, which reinforced the additional support sentiment even as the economy faced fresh risks from a stock market slump.

The final, private Caixin / Markit China Manufacturing Purchasing Managers' Index (PMI) was down to 47.8 in July, retreating from 49.4 in June. It comes as the lowest since July 2013.

This came in lower than a preliminary reading of 48.2 and was the fifth straight month of contraction.

New orders shrank after growing in June, even as factory output fell for the three and a half years.

Under the worsening conditions, companies had to resort to staffing cuts for the 21st straight month. Factories had to also cut selling prices to a six-month low due to increasing competition.

"July data signalled that the downturn in China's manufacturing sector intensified at the start of the third quarter," the report said.

"Renewed falls in both total new work and new export orders led manufacturers to cut production at the fastest rate since November 2011."

The result follows China's announcement on Saturday that its official PMI slowed further in July, decelerating to 50.0 from 50.2 in June, as per the National Bureau of Statistics.

The PMI survey sponsorship was taken over by Caixin from British banking giant HSBC from July.

China's economy, a key driver of global growth, expanded 7.4 per cent last year, the weakest since 1990, slowing further this year to 7.0 per cent in each of the first two quarters.

According to authorities, China's growth needed to be lower to be more sustainable however, they had introduced stimulatory measures to put a floor under the slowdown.

In June, Chin's central bank, People's Bank of China, came out with its latest cut in benchmark interest rates, the fourth such move since November, to boost lending to spur the economy.

The bank had also lowered cash reserve requirements for banks as also other steps such as easing mortgage policies to boost the property market, a key reserve of wealth for many Chinese.