Official data: China's PMI shrinks again in August, amid building pressure for stimulus

China's factory activity shrank for a second straight month in August, but the contraction was milder than forecast — one of the few pieces of good news for policymakers as growth continues to lose steam.

The official manufacturing PMI came in at 49.8, up from July's 49.2, the National Bureau of Statistics said Monday. That beat the 49.6 median forecast in a Reuters poll. However, the index has now stayed below the 50-point expansion threshold for two months running.

Context matters here as second-quarter GDP growth slowed to 4.3%, the weakest since late 2022. Retail sales and industrial output both softened in July, industrial profit growth hit its slackest pace of the year, and urban investment is contracting faster than before. Exports have been carrying much of the load, with double-digit growth for most of 2026 as global AI infrastructure spending keeps orders flowing for Chinese tech hardware.

The August sub-indexes showed some genuine improvement. Production rose to 50.4 and new orders to 50.6 — both back above the expansion line. New export orders jumped to 50.1 from 49.6 in July, a sign overseas demand held firm despite continued disruption from the Middle East. Raw materials inventories and employment both stayed in contraction.

Senior economists expect Beijing to accelerate fiscal spending given growing unease over the slide in urban investment, fast-tracking project approvals and fund disbursement. The impact will likely show up more clearly next month and into the fourth quarter, alongside early signs of a domestic demand recovery. Other analysts said firms appear to be positioning for a lift as local governments step up spending for the rest of the year.

Written by: Farid Muzaffar