China’s factory activity contracts in August despite an uptick in export demand

China’s factory activity improved marginally in August as export demand remained robust, though overall manufacturing still was in a contraction.

China’s official manufacturing purchasing managers' index, or PMI, recovered slightly to 49.8 in August from 49.2 in July, according to the National Bureau of Statistics.

The report Monday was better than what economists had expected.

PMI readings, based on monthly surveys of companies, are measured on a scale of 0 to 100. A reading above 50 indicates an expansion, while below 50 reflects a contraction.

“Manufacturing activity rebounded thanks to strong export demand,” Nguyen Hoang Nam, a China economist at Capital Economics, wrote in a research note Monday.

Several PMI sub-indexes returned to expansion in August. The sub-index on production advanced to 50.4, from 49.9 in July. The new orders sub-index recovered to 50.6 from 48.5, while new export orders improved to 50.1 from 49.6.

Huo Lihui, a chief statistician with the National Bureau of Statistics, said in a statement that the August PMI data reflected an improvement in China's overall economy.

Chinese exports jumped almost 24% in July from the year before, and more than 18% in the first seven months of this year, supported by strong demand for high-tech exports like semiconductors thanks to the boom in artificial intelligence. Robust demand for electric vehicles, in part fueled by higher energy costs due to the Iran war, are another key factor behind strong growth in exports.

China has also been exporting more to regions including Europe and Southeast Asia as US tariffs dent China-US trade following President Donald Trump’s return to the White House last year.

“ Demand for green technologies was already accelerating last year and has continued to strengthen, providing an important additional boost to Chinese exports so far this year,” said Max Zenglein, a senior economist for the Asia Pacific at The Conference Board.

Trade issues will likely be discussed during Trump’s expected meeting with Chinese leader Xi Jinping, which is set for late September.

Despite the boom in trade, sluggish domestic demand partly due to a protracted slump in the property sector has weighed on the Chinese economy.

The economy grew at a 4.3% annual pace in the April-June quarter, its slowest growth rate in more than three years.

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