China’s Factory Slump Eases, But Weak Services Signal Uneven Recovery

• China’s factory activity improved in August 2026 on stronger demand but remained in contraction, while services activity stayed weak, underscoring deepening imbalances in the economy and fuelling calls for policy measures to boost growth. The official manufacturing Purchasing Managers’ Index (PMI) rose to 49.8 in August from 49.2 in July, beating economists’ median forecast of 49.6 but remaining below the 50-point threshold separating expansion from contraction.
• The improvement was supported by stronger production and demand, with new orders and factory production returning to expansion. However, the recovery in manufacturing remained insufficient to offset weakness elsewhere in the economy, particularly in services.
• Activity outside the manufacturing sector remained weak, with the official non-manufacturing PMI at 49.0 in August, remaining below the 50-point threshold separating expansion from contraction. The weakness in services points to persistent softness in domestic demand.
• The figures highlight an uneven recovery in the world’s second-largest economy, which continues to rely on manufacturing and exports for growth, while weak domestic consumption and investment weigh on broader economic activity.
• The divergence between improving factory activity and weak services underscores the deepening imbalances in China’s economy, with the latest readings fuelling calls for additional policy measures to support growth. The continued weakness in domestic demand remains a key challenge as policymakers seek to achieve a more balanced economic recovery.

(Source: Reuters)