Qu Hongbin, chief Chinese economist with the Hong Kong-based bank, said that points to a continuous slowdown of the real economy in the second quarter.

Dow Chemical's Zhangjiagang plant in East China's Jiangsu province has seen no new order growth in the past two months, largely due to the cooling domestic economy and sluggish demand from Europe.

"We saw some growth in the first quarter but things became stagnant in May," said Shu Hui, general manager of the plant.

But Shu stressed the overall healthy condition of operations, saying the firm is actively looking for investment opportunities. One successful case is an ongoing project in Saudi Arabia where the businesses range from oil refineries to plastics, he said.

"Compared with Europe and the United States, China has better chances of coming out of the economic nadir," Shu said as he predicted a series of stimulation plans to be carried out in China over the coming months.

Beijing is organizing a new set of stimulus policies to boost domestic consumption by facilitating investment, a signal that the authorities are turning toward "growth stabilization".

"The decline in the PMI puts more pressure on authorities to loosen policy," said Zhang Zhiwei, chief economist in China with Nomura Securities.

He expected the government to hasten action on the fiscal side, including infrastructure investment, subsidies on consumer goods and public housing investment. At the same time, another 50 basis point cut in the reserve requirement ratio is expected in July.

"If inflation falls to 3 percent or below, we judge that the likelihood of an interest rate cut will rise further," Zhang said.

Inflationary pressure may continue to ease in May, with a forecasted reading of 3.1 percent, according to Societe Generale economist Yao. The National Bureau of Statistics plans to release the data on June 9.

The decelerating trend of China's economy may moderate as the policies come into force, said economists.

They predicted that economic growth may rebound in the second half to more than 8 percent after it hit a low for the year of about 7.6 percent in the second quarter.