BEIJING (Reuters) – An early indicator tracking China’s manufacturing sector showed activity contracted in June, indicating worsening conditions after official data for May showed signs of stabilization.

The Minxin Small and Medium Enterprise (SME) Index dropped to a four-month low of 43.2 in June compared with the previous month’s reading of 45.8.

Small, private firms continue to suffer in relation to large state firms, the survey showed, with smaller companies having a significantly harder time getting bank loans and other types of financing.

A slowdown in the private sector has policymakers worried about longer term growth prospects, and state firms have stepped up investment this year to make up for a decline in private sector growth.

The Minxin SMI Index provides one of the earliest gauges of China’s economy each month, with a specific focus on smaller firms. The data is compiled from a survey of 4,000 private companies, 70 percent of which are small- and medium-sized firms.

Some analysts say the index correlates with China’s official purchasing managers index (PMI) from the statistics bureau, due July 1, though the Minxin data has shown wider swings and has painted a gloomier picture of economic health.

The Minxin index is released by the government-affiliated China Academy of New Supply-side Economics and China Minsheng Banking Corporation.

As with the official PMI, readings above 50 indicate an expansion on a monthly basis, while readings below signal contraction.

The index was first published in November 2014, and has been below 50 since December 2014. A similar Minxin SME index for the non-manufacturing sector fell to a three-month low in June.

(Reporting by Elias Glenn; Editing by Jacqueline Wong)

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