China’s factory activity improves but contracts for second straight month

China's factory activity improved more than expected in August but remained in contraction for a second straight month, underscoring the uneven state of the world's second-largest economy as exports prop up growth while domestic demand falters.

The official manufacturing purchasing managers' index rose to 49.8 from 49.2 in July, the National Bureau of Statistics reported on Monday, beating the median forecast of 49.6 in a Reuters poll and 49.5 in a Bloomberg survey. The reading stayed below the 50-point threshold that separates expansion from contraction.reuters+1

Exports Drive Recovery as Domestic Weakness Persists

Several sub-indexes returned to expansion territory. The production gauge climbed to 50.4 from 49.9, new orders jumped to 50.6 from 48.5, and new export orders edged above the 50 mark at 50.1, up from 49.6 in July. Equipment manufacturing and high-tech manufacturing PMIs stood at 51.4 and 52.9, respectively, reflecting continued strength in technology-related sectors.abcnews+2

NBS statistician Huo Lihui said the data showed "expansion in both production and market demand," with 16 of 21 surveyed industries registering month-on-month gains. Chinese exports surged nearly 24% in July year-on-year, buoyed by global demand for semiconductors amid the artificial intelligence boom and strong sales of electric vehicles.scmp+2

Yet the non-manufacturing PMI, covering services and construction, held at 49.0 — its weakest since December 2022 — with the construction sub-index slipping to 46.9, dragged down by extreme weather including heavy rain and typhoons. The composite PMI edged up only marginally to 49.5 from 49.3.firstpost+2

Pressure Builds on Beijing

The data reinforces the widening gap between a manufacturing sector lifted by foreign demand and a domestic economy weighed down by a prolonged property slump, weak consumer spending, and declining investment. China's economy grew 4.3% in the second quarter, its slowest pace since late 2022.cnbc

"Growth momentum is fading," said Raymond Yeung, chief economist for Greater China at ANZ Australia & New Zealand Banking Group Limited. "We are waiting for the policymakers to announce large stimulus."theedgemalaysia

Goldman Sachs The Goldman Sachs Group, Inc. ↗ 0.07% estimates growth slowed further at the start of the third quarter to about 4%, below Beijing's annual target of 4.5% to 5%. Zhiwei Zhang, chief economist at Pinpoint Asset Management, cautioned it was "too early to conclude the economy had rebounded," noting that rising commodity prices were "driven by supply rather than demand."malaymail+2

Incremental Steps, Not Bold Stimulus

Chinese leaders have pledged additional policy support but have so far proposed only incremental measures, including loan interest subsidies for small firms and accelerated spending on approved infrastructure projects. A People's Daily article published in August signaled the government's reluctance to pursue aggressive stimulus, stating China is "not excessively reliant on strong policy stimulus."straitstimes+1

A separate private-sector manufacturing survey, expected on Tuesday, may offer further clarity on conditions among smaller, export-oriented firms.firstpost