Meanwhile, the government said it was lifting a cap on bank lending in its latest effort to spur growth.
The China Federation of Logistics and Purchasing said its purchasing managers' index, a broad measure of new orders, exports and other factors, fell to 44.6 in October. It was the lowest level since the survey began in 2005 and a drop from September's 51.2. A number above 50 indicates activity is growing, while a number below 50 shows it is contracting.
October's slowdown was driven by a downturn in export orders and demand for goods such as steel and machinery, the federation said.
"Chinese manufacturers are seeing their order books cut, both at home and abroad, as the world economy falls into recession," said Eric Fishwick, head of economic research for the investment bank CLSA, in a report to clients. "The coming 12 months will be difficult ones for manufacturers, China included."
On Monday, China's main stock market index closed at its lowest level in 26 months due to investor unease about the economic outlook.
Beijing has tried repeatedly to boost growth that has deteriorated more rapidly than expected. Regulators have cut interest rates three times in the past six weeks, promised 1 billion yuan ($130 million) in loans to small businesses and boosted tax rebates to struggling textile exporters.
Economic growth slowed to 9 percent in the third quarter, its lowest level in five years and a sharp decline from last year's 11.9 percent. That is considered dangerously slow for a government that needs to create jobs for millions of new workers who enter the economy every year and to satisfy a public that has come to expect steadily rising incomes.
Exports have been growing at an annual rate of more than 20 percent but analysts expect that to fall as low as zero in coming months as global demand weakens.
In a new move to boost growth, Beijing has lifted a cap on loans by Chinese banks, a central bank spokesman said in comments reported over the weekend by the government's Xinhua News Agency.
Beijing took the step to maintain stable growth amid the global credit crisis, said the spokesman, Li Chao. The caps were imposed earlier in an effort to cool a boom in lending and investment that regulators worried might ignite a debt crisis.
"Currently, the central bank is no longer applying firm limits on lending," Li was quoted as saying.
