An employee works on the production line of an auto components manufacturer in Rizhao, Shandong province. GUO XULEI/XINHUA

Contraction in China's factory activity slowed in June while the non-manufacturing sector continued to expand, official data showed on Friday, as the world's second-largest economy sustained recovery trends.

Experts said while the factory activity edged up — the purchasing managers index rose to 49 in June from 48.8 in May — on improved production and stronger demand, the fact that the PMI still remains in the contraction zone indicates the risk of a downward spiral amid still-weak domestic demand.

They called for more efforts to further consolidate the recovery trend, including short-term stimulus measures for expanding domestic demand and long-term solutions to deal with structural issues embedded in the broader economy.

The official manufacturing PMI shrank for the third consecutive month, data from the National Bureau of Statistics showed on Friday. The index remained below the 50-point mark that separates contraction from growth.

The sub-indexes for production and new orders came in at 50.3 and 48.6 in June, respectively, up from 49.6 and 48.3 in May.

China's non-manufacturing PMI came in at 53.2 in June, down from 54.5 in May. Also, the country's official composite PMI, which includes both manufacturing and non-manufacturing sectors, came in at 52.3 in June, down from 52.9 in May, according to the NBS.

"The manufacturing PMI remained within the contraction territory (in June) and the non-manufacturing expanded at a much slower pace, highlighting both the strong headwinds facing the broader economy and the necessity for stepped-up counter-cyclical adjustments," said Wen Bin, chief economist at China Minsheng Bank.

In an early June meeting in Shanghai with a group of companies and financial institutions, Yi Gang, governor of the People's Bank of China, stressed the nation's central bank will enhance "counter-cyclical" policy adjustments to forcefully shore up the real economy. He also said monetary tools will be used to steadily lower the funding costs of the real economy.

Also, a recent State Council executive meeting chaired by Premier Li Qiang said China will adopt a raft of policy measures to sustain its economic recovery. The meeting explored a basket of policy measures with a special focus on enhancing macroeconomic policy adjustments, expanding effective demand, bolstering the real economy and preventing and defusing risks in key sectors.

The meeting called for efforts to keep abreast of the shifting economic situation. More vigorous measures must be taken to strengthen drivers of development and improve the economic structure, so as to sustain the sound momentum of the economic upturn.

Citing the meeting, Wen said the policymakers are stepping up macroeconomic policy support for the economy and the policy efforts have already boosted the development of midsized and large companies.

The People's Bank of China said it has decided to increase the quota of central bank lending and discounts to support rural development and micro and small businesses by 200 billion yuan ($27.53 billion) in total, as its latest efforts to reduce financial costs and boost employment in a targeted manner.

Wen said while the economy may be pressured by several factors both at home and abroad, policy measures will to some extent help stabilize the overall economy, boost demand and ease the downward pressures.

Considering the base effects, he estimated China's economy may expand at a faster pace of around 8 percent in the second quarter, followed by a growth of 4.8 percent and 5.8 percent in the third and fourth quarters, respectively.

His views were echoed by Ning Jizhe, vice-chairman of the China Center for International Economic Exchanges, who said the second-quarter will be better than the first.

Ning told a meeting held by the CCIEE on Friday that China's potential growth rate will be between 5 percent and 5.5 percent during the 14th Five-Year Plan (2021-25) period, and the country has the conditions to achieve its preset annual growth target of around 5 percent this year.

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