China's Manufacturing Activity Contracts for Second Straight Month in August

August PMI Shows Continued Contraction

China's manufacturing activity contracted for a second straight month in August, according to official data released Monday, as soft domestic demand continues to weigh on the world's second-largest economy. The manufacturing purchasing managers' index (PMI) came in at 49.8, down from 49.2 in July, remaining below the 50 mark that separates expansion from contraction. However, both sources noted the reading was better than market expectations, with CNBC reporting it came in above the 49.6 forecast in a Reuters poll of economists, while The Manila Times noted it exceeded the 49.5 forecast in a Bloomberg survey.

National Bureau of Statistics (NBS) statistician Huo Lihui said in a statement that the August PMI showed "expansion in both production and market demand in the manufacturing sector." However, he added that certain sectors, including steel production and chemical materials, saw "weak market activity."

The non-manufacturing PMI, which tracks services and construction, came in at 49.0 in August, unchanged from July but below the Bloomberg forecast of 49.4. Huo noted "weak" activity in wholesale, retail, and capital market services, all "below the critical point."

Broader Economic Strain

The latest data comes as China's economy faces mounting pressures. Growth slowed to 4.3% in the second quarter, the weakest pace since late 2022, as soft domestic demand and a prolonged property slump continue to drag on activity, CNBC reported. The economic malaise deepened in the second half of the year, with consumer spending stalling, urban investment contracting at a faster pace, and unemployment ticking higher.

Retail sales and industrial output both slowed in July, while growth in industrial profits cooled to its weakest pace this year, according to CNBC. The Manila Times similarly noted the impact of trade frictions with Washington and an entrenched property-sector crisis that has spooked consumers.

Exports and AI Demand Provide Support

Despite the overall slowdown, exports have been a key pillar propping up growth this year. CNBC reported that outbound shipments recorded double-digit growth for most of the year, supported by a global boom in AI infrastructure spending that has lifted demand for Chinese-made tech goods. The Manila Times echoed this, describing a "historic boom" in exports that has shown no sign of stopping, helped by the global artificial-intelligence frenzy increasing demand for tech products.

Zhiwei Zhang, president and chief economist at Pinpoint Asset Management, wrote that the rise of commodity prices may have benefited some firms in the upstream manufacturing sector, as both input and output price indexes rose last month. But he stressed: "This is driven by supply rather than demand."

Policy Outlook

Chinese policymakers have pledged to roll out new policy measures in a timely manner and have signaled room for further fiscal spending and monetary easing, CNBC reported. However, economists said the scale of any upcoming support will likely be limited. The Manila Times noted that with looming challenges, economists argue Beijing needs to shift toward a model powered more by household consumption than by traditional growth drivers such as infrastructure investment and property.