China’s manufacturing slows down in June

China's manufacturing sector suffered a sharp slowdown in June, an indication that the country's growth downturn had deepened with the government keeping away from stimulating the sluggish economy.

The official purchasing managers' index declined from 50.8 in May to 50.1 last month dipping to the lowest in four months and just slightly above expectations.

In retreating to the 50 line, demarcating expansion from contraction in the PMI, the survey result pointed to virtual growth suspension in Chinese factories.

A separate PMI published by HSBC provided cause for even greater alarm. The PMI was more weighted to smaller companies in the private sector than the official survey, which had a focus on state-owned companies. The HSBC PMI fell to 48.2 in June, a nine-month low.

The weak data comes following a cash crunch Chinese financial system suffered over the past two weeks, which sent interbank rates to unprecedented highs, precipitating  momentary freeze of the country's credit market.

Given the time it takes for financial stresses to be felt by the broader economy, the impact of the liquidity squeeze would only really begin to show in July, suggesting that there could be worse to come, according to commentators.

Weakness was felt across the board in the official June PMI, with the sub-index for new orders falling from 51.8 to 50.4, while the output sub-index fell from 53.3 to 52.0.

Meanwhile, export orders remained weak and fell in important markets for global trade including China, South Korea, Taiwan and Indonesia. In markets where foreign orders remained strong, such as India, domestic demand fell instead.

Japan though offered a bright spot with big manufacturers' sentiment turning positive  over the three months to June for the first time in nearly two years, according to a closely-watched central bank survey.

The improvement in sentiment shown in the Bank of Japan's quarterly "tankan" survey showed that recent market turbulence had to yet hurt the positive sentiment created by the reflationary policies of the government.

The economic outlook continued to be uncertain as factories struggle across Asia even as the US and Europe are struggle to revive their economies.

Similar surveys are due today in the US and Europe and investors expect the US ISM survey to show marginal growth.

In China, officials warned that things could worsen and according to Zhao Qinghe, a senior statistician at the statistics agency, after Monday's data that the country's factory growth would likely suffer. Meanwhile factories, in preparation for glum times, had cut jobs for 13 consecutive months.