China's factory activity continued to contract in August, with the official manufacturing purchasing managers' index (PMI) registering 49.4, a slight improvement from July's 49.3. This figure, released by the National Bureau of Statistics, was below the median economist estimate of 49.5 and indicates persistent contraction, as a reading below 50 signifies decline. This ongoing slump is attributed in part to a government crackdown on price wars, which is hindering production, even as an extended trade truce with the US provides some relief to manufacturers.
Conversely, a private survey, the RatingDog China General Manufacturing Purchasing Managers' Index, unexpectedly showed a return to expansion, rising to 50.5 in August from 49.5 in July. This result surpassed all forecasts in a Bloomberg survey, where the median estimate was 49.8. This private gauge, which tends to paint a more optimistic picture than official polls due to its focus on smaller, export-oriented firms, indicated the fastest rate of expansion since March. The improvement was partly driven by a recovery in new export orders, suggesting "resilience of external demand in the face of tariffs," according to Zichun Huang, China economist at Capital Economics.
Despite the positive private survey, underlying concerns remain. While overall output and new orders showed muted gains, suggesting limited improvement in domestic demand, average raw material costs rose at their fastest pace in nine months. This led some businesses to pass on higher expenses, with average sale prices stabilizing after eight months of declines. Yao Yu, founder of RatingDog, noted that while business confidence improved, profit trends show only a slight recovery and remain under pressure. Furthermore, employment in the manufacturing sector continued to decline for the fifth consecutive month, reflecting business owners' caution with staffing.
The durability of any improvement is uncertain, with Yao Yu cautioning that the upturn "resembled a breath of relief rather than a sustained rally." He highlighted persistent weak domestic demand, "potentially overstretched external orders," and slow profit recovery as ongoing challenges. The difference between the official and private surveys underscores the complexity of China's economic landscape, with the former surveying over 3,000 companies in mostly upstream sectors and the latter covering over 500 predominantly export-oriented firms. China's non-manufacturing PMI index, covering services and construction, expanded to 50.3 in August from 50.1 in the prior month.
China's export growth has recently exceeded expectations, largely due to increased shipments to Southeast Asia and European countries, while shipments to the US have declined for four consecutive months. Beijing has been actively seeking to expand trade and investment ties with various countries in response to Washington's tariff policies. The recent extension of the tariff truce between Beijing and Washington for another 90 days maintains existing levies, estimated at about 57.6% on Chinese goods and 32.6% on American goods, according to the Peterson Institute for International Economics.
