ECONOMIST: Here's What's Behind Tonight's Ugly China PMI Report

This showed that Chinese manufacturing contracted further and showed that the economic slowdown is deepening.

Bank of America's Ting Lu believes that this decline was in part driven by the pessimism surrounding the run up in interbank rates.

"As the survey was conducted in mid-July, we believe the decline was likely due to the prolonged pessimistic sentiment as a result of the interbank turmoil in June and the uncertainty regarding the new government's growth floor (or even worry of an engineered hard landing as part of the so called “Li Keqiang Economics”).

"Another factor could be the worsening exports (export growth in June was -3.1% yoy), as this HSBC survey is biased towards small exporters."

He also believes that the contraction in manufacturing PMI could have bottomed, because Chinese premier Li Keqiang has promised a 7.5% growth floor for 2013, which should help improve market sentiment.

This also means we're likely to see more supportive measures from policymakers.

Ting adds that "early signs of sequential recovery have emerged with some manufacturers restocking again."