China’s manufacturing activity contracted for a second consecutive month in August, although the decline was smaller than expected, increasing pressure on Beijing to introduce further economic support measures as growth momentum weakens.
The official purchasing managers’ index (PMI) reached 49.8 in August, improving from 49.2 in July but remaining below the 50-point threshold that separates expansion from contraction.
China’s Manufacturing Sector Faces Continued Pressure
The latest data highlights ongoing challenges for China’s economy, which has been affected by weaker domestic demand, a prolonged property downturn, and slower investment activity.
Economic growth slowed to 4.3% in the second quarter, marking the weakest pace since late 2022. Consumer spending remained under pressure, urban investment declined further, and unemployment increased during the second half of the year.
Retail sales, industrial production, and factory profits all showed signs of slowing in July, adding to concerns about the strength of China’s recovery.
Exports Continue to Support Economic Growth
Exports have remained one of the strongest parts of China’s economy this year, helping offset weakness in domestic activity and external challenges.
Demand linked to global artificial intelligence infrastructure expansion has supported shipments of Chinese-made technology products, with exports recording double-digit growth for much of the year.
Government Stimulus Expected to Increase
Economists expect Beijing to accelerate fiscal spending as policymakers respond to declining investment and weaker economic activity.
Tianchen Xu, senior economist at the Economist Intelligence Unit, said local governments are likely to speed up project approvals and funding distribution to support growth.
However, the impact of these measures is expected to become more visible later in the year, particularly in the fourth quarter, as early signs of improvement in domestic demand emerge.
Factory Orders and Production Show Improvement
China’s official PMI data showed improvements in both supply and demand conditions during August.
The production sub-index rose to 50.4, while new orders increased to 50.6, indicating renewed expansion in factory activity.
New export orders also returned to growth territory, rising to 50.1 from 49.6 in July, suggesting stronger overseas demand despite continued global uncertainty.
However, employment and raw material inventory indicators remained below the 50-point mark, showing that some areas of the manufacturing sector continue to struggle.
High-Tech Manufacturing Outperforms Other Sectors
High-tech equipment manufacturing continued to outperform the broader industrial sector.
Production and new order readings for electronic machinery, equipment, and computer communication products exceeded 53, while consumer goods manufacturing remained weaker with a reading of 49.
Economists said companies appear to be preparing for stronger economic activity as local governments increase spending during the remainder of the year.
Inflation Pressures Begin to Rise
Factory-gate price indicators improved in August, partly reflecting higher global crude oil and metal prices.
While some upstream manufacturers benefited from rising commodity prices, analysts noted that price increases were driven more by supply constraints than stronger consumer demand.
Services Activity Remains Weak
China’s non-manufacturing PMI, which includes construction and services, remained unchanged at 49 in August.
The construction sector weakened slightly, while services categories including wholesale, retail, and capital markets activity continued to contract.
A separate private manufacturing survey is expected to show stronger factory activity, with economists forecasting a reading of 51. The private survey typically focuses more on smaller, export-oriented companies and has historically shown a more positive outlook than official data.
