August 31, 2026 (InvestinChina.asia) — A recovery in domestic demand drove a repair in China’s manufacturing Purchasing Managers’ Index (PMI) for August, lifting the “visibility” of an economic bottom, according to a research note by Guolian Minsheng Securities.
Yet the headline gauge still sat below the 50-point neutral threshold, and the improvement was concentrated in large enterprises — evidence that order books are gravitating toward industry leaders. Whether the recovery can return to expansion territory hinges on whether the order rebound spreads to more sectors and to small and midsize firms, the brokerage’s macro team led by chief economist Tao Chuan wrote.
Demand Leads Production Back Into Expansion
The new orders sub-index jumped 2.1 percentage points to 50.6%, outpacing the rise in the production gauge. With the new export orders index only marginally higher, the incremental demand appears to have been largely homegrown. Three forces were at work: a technical rebound after July’s sharp order contraction; accelerating construction under the “six networks” infrastructure program coupled with continued equipment upgrade demand, pushing production and order indices in sectors such as electrical machinery and computer & communications electronics above 53%; and a time lag in transmitting orders to the production line, which initially showed up as a drawdown in finished goods inventories.
Price Indices Rebound, Cost Pressure Returns
The raw material purchase price index rose 3.4 percentage points to 56.6%, while the factory gate price index climbed 2.6 percentage points to 50.4%. Higher international crude oil and nonferrous metal prices lifted input costs, and recovering demand pulled ex-factory prices back into expansion, suggesting some restoration of pricing power. However, the spread between the two price gauges widened further, indicating that cost pass-through to downstream remains incomplete and that corporate profit margins stay under pressure.
Inventories Shift From Passive Buildup to Demand-Driven Drawdown
Both raw material and finished goods inventory indices edged down 0.2 percentage point, even as new orders, production and procurement volumes returned to expansion. That combination points to a passive de-stocking phase, driven by faster production drawdown and order absorption. Guolian Minsheng expects, however, that firms have yet to actively build raw material reserves, with restocking appetite remaining cautious.
Non-Manufacturing Activity Still Soft
The non-manufacturing business activity index held flat at 49.0%. The construction sector remained weighed down by weather disruptions and insufficient project demand, while services also stayed in contraction. Business activity expectations remained elevated, signaling intact corporate confidence, but converting that confidence into real demand still depends on consumption-support policies bearing fruit and major project funding translating into physical work on the ground.
Risks flagged by the research team include policy measures falling short of expectations, domestic economic conditions changing beyond forecasts, and export movements exceeding expectations.