By Langi Chiang and Jonathan Standing
BEIJING (Reuters) - Activity in China's vast manufacturing sector slowed to an 11-month low in July as new orders faltered and the job market weakened, a preliminary survey showed on Wednesday, suggesting the world's second-largest economy is still losing momentum.
The flash HSBC/Markit Purchasing Managers' Index fell to 47.7 from June's final reading of 48.2, a third straight month below the watershed 50 line which divides expansion from contraction and the weakest level since August 2012.
The employment sub-index slid to 47.3 in July, the weakest since March 2009, the depths of the global financial crisis and has been below 50 for four months in a row.
"The lower reading of the July HSBC Flash China Manufacturing PMI suggests a continuous slowdown in manufacturing sectors thanks to weaker new orders and faster destocking," said Hongbin Qu, chief China economist of HSBC.
"This adds more pressure on the labour market," he said.
China's economy grew 7.5 percent in April-June from a year earlier, the ninth quarter of slowdown in the past 10 quarters.
Since taking office in March, China's new leadership has said it is prepared to tolerate lower growth and eschew stimulus in order to push a restructuring of the economy to wean it off a dependence on exports for growth and towards consumption.
But while top leaders have stressed in recent weeks that reform is the priority, the latest being President Xi Jinping, they were also at pains to assure investors that Beijing would not allow the economy to slip too far.
On Wednesday the industry ministry said it was putting a priority on restructuring and reforming traditional industries such as steel, shipbuilding, cement and aluminium, once drivers of growth but now plagued with overcapacity.
GRAPHIC - Asian PMIs: http://link.reuters.com/maz35s
GRAPHIC - China PMI and industrial output http://link.reuters.com/qaf92t
UNEMPLOYMENT CONCERN
Even as reform slows growth, economists in the latest Reuters poll predicted China's economy would grow 7.5 percent in 2013, hitting the government's target.
But other analysts noted that China is still reliant on healthy global markets.
The PMI's new orders sub-index fell to its lowest level in 11 months, and stayed below 50 for a third straight month. Output declined to 10-month low and remained in contraction for a second month.
"China cannot change its weak economic growth situation due to still weak external demand and over-capacity problems in domestic market," said Wang Jian, a senior researcher with the China Society of Macroeconomics, a research body affiliated with the National Development and Reform Commission (NDRC).
"China's economic growth rate will probably fall below 7 percent in the fourth quarter this year and the growth may fell under 6 percent in some quarter next year," Wang wrote in the China Securities Journal on Wednesday.
The government has begun fine-tuning policy in response to the slowdown. Last week it scrapped the floor on bank lending rates to help lower financial costs for companies.
The next area of concern could be unemployment, which the government fears because of the potential for social unrest.
Economists say the new leadership in Beijing believes annual growth of 7 percent is needed to create enough jobs to maintain social stability, although the top leaders have never specified a figure.
"The slowdown in the manufacturing sector is having a bigger impact on employment," said Jerry Hu, an economist at Shanghai Securities. "The employment problem could get more severe if the service sector slows.
The service sector, which took over manufacturing as the biggest economic sector in 2007, is also the biggest employer, providing 36 percent of the country's jobs compared with 30 percent in factories.
Leaders will be banking on the sector continuing to grow to take up the slack in manufacturing jobs.
The HSBC/Markit Flash PMI is published about a week before the final reading, and is based on approximately 85-90 percent of total PMI survey responses each month. It is the earliest available indicator of monthly activity in the Chinese economy.
(Editing by John Mair)
