China Manufacturing PMI Contracts Again as Recovery Remains Fragile

China’s manufacturing sector remained in contraction territory for a second consecutive month in August, although improving factory orders helped slow the pace of decline. Services activity also weakened, highlighting persistent challenges facing the world’s second-largest economy.

The official manufacturing purchasing managers’ index (PMI) increased to 49.8 in August from 49.2 in July, according to data released Monday by China’s National Bureau of Statistics. The result exceeded market expectations of 49.5 but remained below the 50-point threshold separating expansion from contraction.

There were some encouraging signs within the manufacturing data. The new orders index jumped to 50.6 from 48.6, moving back into expansion territory. New export orders also improved, climbing to 50.1 from 49.6, suggesting a modest recovery in demand for Chinese goods.

Capital Economics expects China’s economic momentum to strengthen during the remainder of the year as disruptions caused by typhoons ease and local governments accelerate previously budgeted spending.

The research firm also noted that business expectations remained firmly above the 50 level despite edging slightly lower, indicating companies continue to anticipate stronger future output as government spending increases.

However, weakness outside the manufacturing sector remained evident. China’s official non-manufacturing PMI stood at 49.0 in August, unchanged from July and below economists’ forecast of 49.5. The reading marked a second consecutive month of contraction in services and other non-manufacturing activity.

Meanwhile, China’s composite PMI, which tracks both manufacturing and non-manufacturing sectors, edged up to 49.5 from 49.3 but remained in contraction territory.

The latest China PMI data comes as the broader economy struggles with sluggish domestic demand and a prolonged property market downturn. Industrial production, retail sales and investment growth all slowed in July, adding pressure on policymakers to support economic activity.

Beijing has introduced additional stimulus measures, including an 800 billion yuan financing facility aimed at supporting local projects. However, the economic impact of the program is expected to emerge gradually as funding is deployed.

The August PMI figures suggest China’s manufacturing downturn may be stabilizing, but continued weakness in services and domestic demand underscores the fragility of the country’s economic recovery.