China manufacturing stuck in contraction means BUSINESS

BEIJING - China's manufacturing activity contracted for an 11th straight month in September, banking giant HSBC said Thursday, as factories struggled with weak demand and hard-to-sell inventories.

The preliminary reading of the purchasing mangers' index (PMI) released by the British bank hit 47.8 this month, a mild improvement from a final reading of 47.6 in August, HSBC said in a statement.

But the latest reading marked nearly a year of continuous contraction since November, underscoring broader economic weakness and shrinking demand in key overseas markets.

The index is closely watched as it gauges nationwide manufacturing activity, a key sector of the world's second-largest economy. A PMI reading above 50 indicates expansion, while anything below 50 points to contraction.

China's official PMI figure for August released earlier this month hit a nine-month low of 49.2.

Qu Hongbin, HSBC's Hong Kong-based chief economist for China, said the lacklustre manufacturing activity in September was due to "weak new business flows and a longer than expected destocking process".

But he said effects of the loosening measures authorities have taken in response to slowing economic growth should start to kick in during the next quarter.

"The recent easing measures should be working to lead to a modest improvement from the fourth quarter onwards," he said in the statement.

HSBC said final PMI figures for the month will be released on September 29.

Authorities this year have tried to boost the economy with interest rate cuts and by lowering the amount of cash banks must keep on hand in a bid to spur the kind of lending that could stimulate stronger growth.

China's economic growth slowed to 7.6 percent in the three months through June, the sixth straight quarter of weakening expansion and the worst result since the height of the global financial crisis.

Weak economic data in the current third quarter have raised fears China's growth may have slowed for a seventh straight quarter when gross domestic product figures are released next month.

Problems in the broader global economy, including Europe's prolonged debt crisis and a sluggish recovery in the United States -- both major trading partners for China -- have weighed.

Premier Wen Jiabao said in a speech this month that China is still likely to achieve its annual economic growth target of 7.5 percent. Even so, that would mark a significant slowdown from 9.3 percent growth in 2011 and 10.4 percent in 2010.