BEIJING—A gauge of China’s factory activity showed more sluggishness in December, with the world’s second-largest economy ending the year on a weak note.

Analysts said that the final reading of the HSBC Manufacturing Purchasing Managers’ Index, though slightly better than a preliminary figure, still pointed to problems ahead for the country’s factories amid flagging domestic demand.

“It’s not a good sign for next year,” said Lu Zhengwei, chief economist at Industrial Bank Co. in Shanghai.

The HSBC PMI, a gauge of nationwide manufacturing activity, fell to a final reading of 49.6 in December from 50 in November, HSBC Holdings PLC said Wednesday. A reading below 50 indicates a contraction in manufacturing activity from the previous month, while a reading above that shows expansion.

“Today’s data confirmed the further slowdown in the manufacturing sector towards year-end, ” HSBC’s chief economist for China, Qu Hongbin, said in a statement. “We believe that weaker economic activity and stronger disinflationary pressures warrant further monetary easing in the coming months.”