China’s August PMI Improved, but Weak Services and Demand Point to an Uneven Recovery

China’s August data showed an economy stabilising at the margin, not breaking into a broad recovery. Manufacturing improved as production and orders returned to expansion, but the headline PMI remained below 50, services stayed in contraction and domestic demand continued to lag. 25

Manufacturing improved, but remained in contraction

China’s official manufacturing purchasing managers’ index rose from 49.2 in July to 49.8 in August, a gain of 0.6 points. However, any reading below 50 signals contraction, so the sector remained below the expansion threshold for a second consecutive month. 25

The details were more encouraging than the headline figure:

• The production index rose to 50.4, from 49.9 in July.
• The new-orders index increased to 50.6, from 48.5.
• The new-export-orders index climbed to 50.1, from 49.6.

Each of those measures moved into expansion territory, indicating that factory output and orders improved during the month. 1012

That improvement was not strong enough to lift the overall manufacturing gauge above 50. Soft domestic demand, weak producer sentiment and disruption from heavy rain and typhoons continued to weigh on activity. 36

Services provided no domestic-demand offset

The official non-manufacturing PMI, which covers services and construction, was unchanged at 49.0 in August. Remaining below 50 indicated continued contraction rather than a recovery in the parts of the economy most closely tied to domestic activity. 7

The composite PMI output index rose from 49.3 to 49.5, according to official data reported by RTHK and Xinhua-linked coverage. That small increase pointed to some improvement in overall business activity, but the index also remained below 50. 10

Taken together, the three readings describe a mixed economy: factories were beginning to recover, while services and construction were still not generating enough momentum to produce a broad-based expansion.

Exports were stronger than the domestic economy

Robust export demand helped support Chinese manufacturing in August. Analysts attributed part of the factory improvement to stronger overseas orders, while the return of the new-export-orders index to expansion reinforced that interpretation. 24

That external strength contrasted with weaker conditions at home. Industrial output growth slowed to 4.5% year on year in July from 5.3% in June, while fixed-asset investment fell 6.7% in the first seven months of 2026, according to Reuters. The same report said slowing retail sales and persistent domestic-demand weakness were renewing pressure on policymakers.

The result was an uneven recovery in which manufacturing and exports continued to carry more of the economy’s momentum than household consumption and services. That imbalance matters because stronger export orders alone may not create a durable recovery if domestic demand remains soft. 6

Economists saw a possible rebound—but not a confirmed one

The more optimistic reading is that August marked the beginning of a rebound. Production and new orders returned to expansion, export demand remained resilient and the impact of extreme weather could fade. Economists cited by CNBC also expected growth to improve later in the year as adverse weather eased and local governments accelerated fiscal spending. 211

The cautious interpretation is that the increase to 49.8 was only a partial recovery from July’s five-month low. Manufacturing was still contracting, services remained below 50 and domestic demand had not convincingly turned higher. Reuters described the data as evidence of deepening imbalances between manufacturing and services rather than a broad recovery. 3

Both views leave September as the key test. If production, orders, consumption and services improve after the typhoon disruptions fade, August may prove to have been a temporary step toward recovery. If services and domestic demand remain weak, the PMI rebound will look more like a short-lived stabilisation.

Why major stimulus was not yet the base case

August’s figures increased pressure on Beijing to support growth, but they did not yet show either a sustained downturn or a convincing economy-wide recovery. That makes incremental and targeted support more likely than an immediate, large-scale stimulus response. 45

The policy challenge is uneven: manufacturing already benefits from relatively strong external demand, while households, services and domestic consumption remain the weaker links. Further support would therefore need to address the demand shortfall rather than rely only on additional industrial production.

For now, the clearest conclusion is that China’s economy improved at the factory level but remained fragile overall. September’s data should show whether the August gains survived the end of the weather disruptions—and whether domestic demand can finally begin to match the strength of exports.