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China's factory activity contracts again in April

Wang Zhao | AFP | Getty Images

Activity in China's manufacturing sector unexpectedly declined further in April, a private survey showed Tuesday, reviving doubts over the health of the world's second-largest economy.

The Caixin Manufacturing Purchasing Managers' Index (PMI) fell to 49.4 in April from 49.7 in March, according to Markit, which compiles the index. A reading above 50 indicates expansion; one below indicates contraction.

Economists polled by Reuters had forecast a reading of 49.9.

The Caixin PMI, which focuses on smaller and medium-sized enterprises, was last in expansionary territory in February 2015. The official PMI, which targets larger companies, printed at 50.2 in April, the second successive month of expansion, figures released over the weekend showed.

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The survey findings follow recent economic data that appeared to suggest that China's economy was slowly regaining its poise after a torrid 12 months. China's exports rose at their fastest clip in a year in March, while industrial profits also picked up in the first quarter.

A flurry of rate cuts and easing of reserve requirement have helped bolster sentiment, while the capital outflows that had unnerved sentiment at the start of the year have slowed.

The Caixin survey, however, cast a more somber picture. Respondents reported stagnant new orders, while new export work fell for a fifth month running. Companies shed staff as client demand was muted.

"The fluctuations indicate the economy lacks a solid foundation for recovery and is still in the process of bottoming out. The government needs to keep a close watch on the risk of a further economic downturn," said He Fan, chief economist at Caixin Insight Group.

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