China's manufacturing activity fell for a second month in June, while services activity slipped to a five-month low, an official survey revealed on Sunday. This development has sustained calls for further stimulus as the economy struggles to regain momentum.

The National Bureau of Statistics (NBS) purchasing managers' index (PMI) stood at 49.5 in June, unchanged from May. This figure falls below the 50-mark that separates growth from contraction, aligning with a median forecast of 49.5 in a Reuters poll. Despite this stagnation, some analysts argue that actual industrial activity might be stronger than indicated by the data.

Xu Tianchen, a senior economist at the Economist Intelligence Unit, noted that the official PMI might not fully capture the current export momentum, which has been a significant economic driver this year. However, he added that both external and domestic demand remains inadequate to absorb China's manufacturing capacity, preventing a recovery in producer prices.

While a sub-index of production was above 50 in June, other indexes of new orders, raw material stocks, employment, supplier delivery times, and new export orders remained in contractionary territory according to the NBS survey.

China's exports exceeded forecasts in May, but analysts remain uncertain about the sustainability of these export sales, especially given the growing trade tensions between Beijing and Western economies. Additionally, a protracted property crisis continues to drag on domestic demand.

With consumers cautious and the Labor Day holiday boost proving temporary, the non-manufacturing PMI, which includes services and construction, fell to 50.5 from 51.1 in May, the lowest since December. The services PMI dropped to 50.2, a five-month low, and the construction PMI slipped to 52.3, the weakest reading since July of the previous year.

Analysts expect China to roll out more policy support measures in the short term. A government pledge to boost fiscal stimulus is seen as a potential catalyst for increasing domestic consumption. Hao Zhou, the chief economist at Guotai Junan International, pointed out the limited room for monetary policy easing due to pressure on the Chinese currency. Instead, he suggested that fiscal policy would likely take the lead, implying that the central government might need to issue more debt to boost overall domestic demand.

However, high local-government debt and deflationary pressure pose significant challenges to recovery prospects. Despite a slew of measures that officials have rolled out since last October, these issues have tempered expectations among investors and factory owners.

In a bid to address some of these challenges, China's central bank recently announced a relending program for affordable housing, aiming to accelerate the sales of unsold housing stock and better match supply with demand. Additionally, officials are under pressure to fire up new growth engines to reduce the economy's reliance on property.

Premier Li Qiang, speaking at a World Economic Forum meeting, emphasized that the growth of new industries supports healthy economic development. He noted that since the beginning of the current year, China's economy has maintained an upward trend and is expected to continue improving steadily over the second quarter.

Economists and investors are keenly awaiting the Third Plenum, scheduled for July 15-18, which will see hundreds of China's top Communist Party officials gathering in Beijing for this five-yearly meeting.