China's manufacturing sector showed further strengthening in August, though pricing dynamics revealed divergent trends across the economy.

Data released on September 1st from S&P Global and RatingDog showed the RatingDog China Manufacturing Purchasing Managers' Index (PMI) rose to 51.5 in August, up 0.6 percentage points from July's reading of 50.9. This represents a two-month high and marks the ninth consecutive month above the boom-bust line of 50, extending the longest expansion cycle in nearly five years. New orders have now grown for fifteen straight months, the longest continuous growth streak since 2018, while the pace of new export orders accelerated to its fastest level in six months.

Meanwhile, a notable divergence emerged on the pricing front: raw material costs rose at a slightly faster pace, yet manufacturers lowered their output prices for the first time in 2026, reflecting persistent competitive pressures in the market. Employment levels stabilized following two months of expansion, with clear divergence appearing across sub-sectors.

RatingDog founder Yao Yu noted that the manufacturing sector as a whole continued to strengthen in August, with demand, output, and exports all accelerating. "The faster pace of new order growth and strong export expansion are positive signals, while the first output price cut of the year in 2026 suggests competitive pressures remain," Yu stated.

Surveyed companies remained optimistic about production prospects over the next twelve months, citing factors such as rising market and customer demand, new product launches, business expansion plans, improving macroeconomic conditions, capacity expansion, and technological upgrades. However, overall confidence fell to its lowest level since January, indicating a tempering of optimistic expectations. Yao Yu indicated that manufacturing PMI is expected to remain in expansion territory in the near term.

Demand and Output: Order Expansion Accelerates, Output Hits Three-Month High

Chinese manufacturers recorded their fifteenth consecutive month of new order growth in August, with the pace accelerating from July and exceeding the long-term average. Companies attributed order growth to multiple factors including improved market conditions, stronger customer demand, new client acquisition, export growth, and business development efforts.

Export orders performed particularly well. New export business expanded at the fastest pace in six months, driven by robust growth in the consumer goods sector, providing significant support to overall new order expansion.

Supported by a full order pipeline, manufacturing output expanded for the ninth consecutive month in August, posting the strongest growth rate since May. Backlogs of work increased alongside this, rising for the seventh straight month at the fastest pace since March, indicating that current demand exceeds production capacity to absorb it.

Costs and Prices: Input Costs Edge Higher, Output Prices Decline for First Time This Year

A clear divergence emerged on the pricing front in August. Input cost inflation accelerated for the first time since April, though the overall magnitude remained moderate, driven by rising prices for raw materials such as metals and oil, supplier price adjustments, market volatility, and stronger demand.

Despite rising cost pressures, manufacturers chose to lower their output prices—the first such reduction since the beginning of 2026. Companies linked this move to intense market competition and promotional activities, with the scale of reductions remaining relatively limited overall.

The divergence between rising input prices and falling output prices means some manufacturers face a degree of margin compression. Yao Yu noted this phenomenon reflects "persistent pressure under competitive market conditions."

Employment and Inventories: Staffing Levels Stabilize, Inventory Accumulation Continues

On the employment front, August readings were broadly flat, following two consecutive months of growth. By sub-sector, consumer goods manufacturers continued to add staff, but intermediate goods and investment goods sectors shed workers, offsetting each other and returning the overall employment index to neutral.

In terms of purchasing and inventories, manufacturers resumed increasing their purchasing activity in August after a modest reduction in July, with procurement growth reaching its strongest level in four months. Raw material inventories increased for the ninth consecutive month, marking the longest accumulation sequence since 2006-2007.

Finished goods inventories also expanded at their fastest pace since September 2025. Supplier delivery times remained broadly unchanged from July, indicating generally stable supply chain operations.