Chinese equities closed with losses on the start of the trading week as sentiment was dampened over the contraction of the manufacturing sector.

The Shanghai Composite Index, the main gauge of Chinese stocks, dropped 2.5%, or 102.20 points, to close Monday's trade at 4,015.75. The Shenzhen Component Index inched 2.7% down, or 381.54 points, to 13,824.35.

China's factory activity fell back into contraction in January after its Purchasing Managers' Index slipped to 49.3 from the 50.1 expansion in December 2025, according to data from National Bureau of Statistics.

The services sector also shrank after the non-manufacturing purchasing managers' index fell to 49.4 in January from 50.2 in the prior month, NBS data showed.

The official readings overshadowed the RatingDog PMI, which posted a slight rise to 50.3 from 50.1% in December 2025.

In corporate news, FS Development Investment Holdings (SHE:300071) slumped 19.4% after a national supervisory authority placed its chairman, Chen Yongliang, under detention.

Zhongji Innolight (SHE:300308) slumped 8.9% despite forecasting its 2025 attributable net profit to soar between 90% and 128%.

China Vanke's (SHE:000002; HKG:2202) Shenzhen shares dropped 4.1% after predicting that its attributable loss will widen year on year in 2025.