The official purchasing managers' index (PMI) rose to 49.4 in August versus 49.3 in July, remaining below the 50-mark separating growth from contraction and missing a median forecast of 49.5 in a Reuters poll.
China's economy is confronting weakening exports due to US tariffs, a property sector downturn, rising job insecurity, heavily indebted local governments and extreme weather. These pressures threaten to derail Beijing's ambitious 2025 growth target of "around five per cent", according to economists.
The non-manufacturing PMI index, which includes services and construction, expanded at a quicker pace, rising to 50.3 from 50.1 in August, according to the National Bureau of Statistics (NBS).
The NBS composite PMI of manufacturing and non-manufacturing was 50.5 in August, compared with 50.2 in July.
While July exports beat forecasts, the gain was supported by a low base and driven by a surge in shipments to Southeast Asia, as Chinese exporters scramble to grow market share there amid fears of losing access to the US, the world's top consumer market - a push some producers have called a "mad rat race".
Earlier this month, the US and China extended their tariff truce for another 90 days, locking in place levies of 30 per cent on Chinese imports and 10 per cent Chinese duties on US goods, but the uncertainty is eroding confidence on both sides of the Pacific.
Profits at China's industrial firms fell for a third straight month in July, official data showed on Wednesday, highlighting how businesses are also struggling with subdued demand and persistent factory-gate deflation at home, keeping the pressure on Beijing to roll out more stimulus.
Policymakers have ramped up consumer subsidies, but a prolonged property slump is still crimping spending, with real estate a key store of household wealth.
Households' reluctance to take out mortgages was reflected in July bank lending data, which unexpectedly contracted for the first time in 20 years.
And consumer spending could take a further hit if a recent ruling by China's top court banning firms and employees from skirting social insurance payments leads to job losses, with many companies and workers already struggling to make ends meet. Urban unemployment edged up to 5.2 per cent in July from five per cent in June.
