The flash HSBC Purchasing Managers' Index (PMI) fell to 48.3 in June from May's final reading of 49.2, drifting further away from the 50-point level demarcating expansion from contraction. It was the weakest level since September.
Manufacturing sectors are weighed down by deteriorating external demand, moderating domestic demand and rising destocking pressures, said Qu Hongbin, chief China economist at HSBC.
Beijing prefers to use reforms rather than stimulus to sustain growth. While reforms can boost long-term growth prospects, they will have a limited impact in the short-term. As such we expect slightly weaker growth in 2Q.
China's economy grew at its slowest pace for 13 years in 2012 and so far this year economic data has underwhelmed, bringing warnings from some analysts that the country could miss its growth target of 7.5% for this year.
The Australian dollar hit a fresh 33-month low after the latest bearish data, which fuelled worries about a slowdown in Australia's single biggest export market.
Most of Asia's main share markets were down more than 1%, with the Asia ex-Japan index down 2.8%.
In the survey, a sub-index measuring overall new orders dropped to 47.1 in June, the lowest reading in 10 months, suggesting demand is weakening both at home and abroad.
The survey, compiled by British-based Markit Group, also showed new export orders weakened further in June, pointing to persistent global headwinds as the US recovery remains patchy, while Europe's economy remains shackled by the debt crisis.
An employment sub-index also eased in June broadly in line with signs of softening demand for migrant workers in Chinese cities even though the overall job market is holding up as the government tries to improve social safety nets.