Growth in China's vast factory sector slowed to multi-month lows in June on faltering new orders, a pair of surveys showed on Monday, boding ill for the world's second-largest economy still smarting from fears of a credit crunch.

Economists said the two purchasing managers' indices (PMI) reinforced their concerns that China's economic cooldown could deepen in the second quarter, especially with Beijing looking increasingly reluctant to take action to stimulate growth.

"The Chinese economy is still struggling at the bottom," said Haibin Zhu, chief China economist of JPMorgan in Hong Kong.

Zhu said slowing growth in China's factory sector, as well as tighter monetary conditions in coming months after a squeeze in the interbank market in the last two weeks, could further hobble the Chinese economy this year.

The official PMI slipped to 50.1 in June from May's 50.8, just a whisker above the 50-point level that indicates growth. The last time the reading fell below 50 was in September.

A separate PMI survey, conducted by Markit and sponsored by HSBC, fell to a 9-month low of 48.2 from May's 49.2.

Yet, China's leaders appear to be comfortable with the country's slower pace of growth, with President Xi Jinping saying over the weekend that officials should no longer be lauded as "heros" if they chase economic growth at all costs.

The surveys showed demand slackening at home and abroad.

New orders in the official PMI survey tumbled to a four-month low of 50.1 in June. Unlike previous months, it did not publish a reading for new export orders this month without explaining why.

The HSBC/Markit PMI, which focuses on smaller firms and exporters, showed new orders in June slumped to their lowest level since October, even though producers had cut prices to improve sales.

The HSBC survey also showed new export orders shrinking in June at their fastest pace since September as US and European clients reduced purchases even after Chinese producers passed on cost savings.

Another pair of PMI surveys measuring service activities is scheduled to be announced on Wednesday.

LEADERS AT EASE ON SLOWING GROWTH

Despite growing worries from investors, China's new leadership of President Xi Jinping and Premier Li Keqiang, who formally took office in March, appeared comfortable with the economic slowdown and reiterated efforts to speed up reforms.

"We need to improve method and means of measuring performance," said President Xi, during a weekend meeting with his high-ranking team. "We should no longer call someone a hero simply based on GDP growth rate."

His determination to push on with market reforms and the rebalancing of the investment- and export-driven economy was highlighted by turmoil in the interbank market in the last two weeks, when the central bank let short-term borrowing cost spike to record highs without immediately injecting liquidity to ease conditions.

China's chief banking regulator said on Saturday that liquidity in China's banking system is sufficient as banks have more than enough reserves to meet settlement needs.

But the cash crunch will likely further dim China's economic outlook in the second half, as banks are expected to slow the expansion of off-balance-book lending while the new leadership will probably refrain from stimulus.

"If banks pass the higher borrowing rates in the interbank market to their clients, that will mean an actual monetary tightening," said Zhu from JPMorgan.

He expected slower expansion in total social financing, a broad measurement of liquidity for the rest of 2013, another 9 trillion yuan in the June-December period compared with 9 trillion yuan in the first five months.

EVEN SLOWER H2

"The June PMI fall, across the board on major sub-indexes, indicates downward pressure in the economy," Zhang Liqun, an economist with the Development Research Centre, a top government think tank, said in a statement accompanying the release of the official PMI.

The output sub-index dropped to 52.0 in June from May's 53.3 and the inventories level worsened to 47.4 from 47.6 in May.

A reading above 50 indicates expanding activity while a reading below that level points to a contraction.

The HSBC/Markit PMI showed a rising stock of finished goods, for the fourth month in a row in June, and its output sub-index contracted last month for the first time since October while factories shed jobs at the quickest pace since August.

Economists expect other data for June, to be released in the next two weeks, to confirm their concerns of even slower growth in the April-June quarter from 7.7 per cent in the first three months.

"The weak PMI reinforces our view that there is 30 per cent chance GDP may drop below 7 per cent in Q3 or Q4," said Zhiw. - Reuters