China's manufacturing activity continued to shrink in April, but at a slower pace, fresh evidence that the sector is facing growth challenges, according to HSBC's purchasing managers' index (PMI) released on Monday.

The HSBC/Markit China PMI, an indicator designed to provide a snapshot of operating conditions in the manufacturing sector, stood at 48.1 in April, down fractionally from the earlier flash reading of 48.3. But up from 48.0 in March, data company Markit said in a statement.

A PMI above 50 percent indicates expansion, while one below 50 percent indicates contraction.

Production at manufacturers fell for the third consecutive month in April, though at a weaker pace than in March. Goods producers cut their staffing levels for the sixth month running in April, said the statement.

"The latest data implied that domestic demand contracted at a slower pace, but remained sluggish. Meanwhile, both the new export orders and employment sub-indices contracted, and were revised down from the earlier flash readings. These indicate that the manufacturing sector, and the broader economy as a whole, continues to lose momentum," said HSBC chief China economist Qu Hongbin.

China's gross domestic product (GDP) expanded 7.4 percent in the first quarter, as slower property investment and exports weighed on broader economic growth during the period.

"Over the past few days, Beijing has introduced more reform measures which could support growth by inducing more private sector investment. We think bolder actions will be required to ensure the economy regains its momentum," Qu added.

The government recently introduced measures to support the economy and job creation, including cutting the reserve requirement ratio for some rural financial institutions.

However, an official reading of manufacturing sector activity pointed to signs of recovery, as the PMI rose to 50.4 in April, up from 50.3 in March, the second consecutive monthly increase after three months of declines, according to data jointly released by the National Bureau of Statistics and the China Federation of Logistics and Purchasing last week.

Latest data showed that China's economy is stabilizing on the back of recovering domestic demand, and steady consumption growth is conducive to manufacturing sector expansion, Peng Wensheng, chief economist at the China International Capital Corporation, said in a research note.