China's manufacturing activity in August shrank for a second straight month, though by less than market estimates, keeping the pressure on Beijing to support the economy as growth loses momentum.
The official purchasing managers' index reading came in at 49.8, compared with 49.2 in July, National Bureau of Statistics data showed Monday, better than Reuters-polled economists' forecast of 49.6.
China's economy has come under mounting strain, with growth slowing to 4.3% in the second quarter, the weakest pace since late 2022, as soft domestic demand and a prolonged property slump continue to weigh on activity.
The economic malaise deepened further in the second half of this year, as consumer spending stalled, urban investment contracted at a faster pace, and unemployment ticked higher.
Retail sales and industrial output both slowed in July, while growth in industrial profits cooled to its weakest pace this year.
Exports have been one of the few pillars propping up growth this year, cushioning some of the drag from external shocks as a global boom in AI infrastructure spending lifts demand for Chinese-made tech goods. Outbound shipments recorded double-digit growth for most of this year.
Economists expect better growth for the rest of the year, as adverse weather fades and local governments accelerate fiscal spending.
Beijing is likely to further accelerate fiscal spending as policymakers have grown increasingly worried over the collapse in urban investment, said Tianchen Xu, senior economist at the Economist Intelligence Unit. "This should fast-track project approval and fund disbursement."
But the effect of such policy expansion will only become more prominent next month, and in the fourth quarter, Xu said, pointing to early signs of recovery in domestic demand.
Supply and demand both improved in August, according to the NBS release, with the sub-indexes tracking production and new orders expanding to 50.4 and 50.6, respectively.
New export orders rebounded to 50.1 in August from 49.6 in the previous month, signaling a recovery in overseas demand even as the global economy weathered the prolonged Middle East turmoil.
The sub-indexes on raw materials inventory and employment, however, were in contractionary territory below the 50-mark threshold.
High-tech equipment manufacturing outpaced the broader factory sector. The production and new orders readings for the electronic machinery and equipment, computer communication devices sectors topped 53, while consumer goods production lagged at 49.
Overall, firms appeared to be anticipating "a boost to economic activity as local governments step up spending over the rest of the year," said Nguyen Hoang Nam, China economist at Capital Economics.
The improvement in the factory-gate price sub-indexes also pointed to renewed inflationary pressures, in part due to higher global crude and metal prices.
