It was the 15th straight month that the PMI, designed to provide a timely snapshot of conditions in industry, has been above the 50 mark that divides expansion from contraction.
But the slippage in the PMI to near the boom-bust line is further evidence that policy steps to slow bank lending and cool the property market are having an impact on the world's third-largest economy.
'The moderation in the manufacturing PMI implies slower sequential growth in China's manufacturing sector, partly due to the tightening measures taking effect. But fears about hard-landing are overplayed,' said Qu Hongbin, chief economist for China at HSBC.
'We expect China to achieve around 9 percent growth in the second half, underpinned by massive ongoing investment and robust private consumption,' he said.
HSBC China PMI (seasonally adjusted):
Jun May Apr Mar Feb Jan Dec Nov Oct Sep
50.4 52.7 55.2 55.7 55.8 57.4 56.1 55.7 55.4 55.0
The new orders sub-index fell below 50 for the first time in 15 months, dropping to 49.7 in June from 54.1 in May. The points decline in new export orders was even steeper.
Reflecting the weakness in new business, factory output also tumbled below 50 for the first time since March last year.
As the pace of production slowed, so did inflationary pressures. Both the input and output price sub-indexes of the PMI fell below the 50 threshold for the first time in a year.
'Anecdotal evidence suggested that reduced output charges reflected lower input costs and, in some cases, client requests for price discounts,' according to Markit, the British research firm that compiles the index for HSBC.
The official PMI for April, produced for the National Bureau of Statistics and released earlier on Thursday, fell to 52.1 from 53.9 in May.
BROAD-BASED SOFTNESS
Other findings from the Markit survey include:
-- Weakness in new orders reflected oversupply and government curbs on property development, respondents said.
-- Around 11 percent of panellists indicated a decline in export orders, but 79 percent reported no change on the month.
-- The sub-index measuring backlogs of work fell below 50 for the first time in 15 months, reflecting weak new orders.
Those firms that reported increased backlogs cited labour shortages and said production capacity was under pressure.
-- Manufacturers added to their stocks of finished goods at the fastest rate since last October, reflecting the reduction in new orders and an excess of production. Some, though, said they had added to inventories in anticipation of stronger demand.
-- Employment increased for a thirteenth straight month and was slightly faster than in May. Around 9 percent of respondents stepped up hiring as part of efforts to expand capacity.
-- Around a quarter of panellists reported a decline in input costs and said vendors were offering discounts in line with generally lower global commodity prices. A range of metals, in particular steel, fell in price over the month. Companies said they had passed on the lower costs to their customers.
-- Despite weakness elsewhere in the survey, suppliers' delivery times lengthened for the 11th straight month, partly reflecting stock shortages as global demand for inputs remained relatively strong.
-- The volume of pre-production purchases fell after 14 months of growth due to weak new orders and the utilisation of existing inventories. The stock of purchases held by manufacturers fell in tandem for the first time in seven months.
(Reporting by Alan Wheatley; Editing by Jonathan Hopfner)
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