China's factory activity unexpectedly shrinks in July as demand sags

Strong manufacturing and goods exports in the first half of the year have somewhat cushioned the Chinese economy from the Middle East oil shock and helped offset weaknesses in the property market and employment, but economic data released earlier this month showed that growth had lost steam and structural imbalances had deepened.

The Politburo, China's top decision-making body, pledged in a meeting on Thursday to "attach great importance" to the difficulties and challenges in the economy, and said the government would leverage existing policies and roll out new policies in a timely manner.

It reiterated policy pledges for expanding domestic demand, but did not unveil specific new measures.

Gross domestic product growth in the second quarter slowed to 4.3% from 5.0% in the first three months, below the official annual target of 4.5%-5%, adding pressure on policymakers to deliver stronger stimulus measures to shore up domestic demand and investment.

PMI data released by the NBS showed that demand dropped sharply, with the subindex for new orders sinking to 48.5 from 51.2 the previous month. The gauge for new export orders also contracted, coming in at 49.6 in July compared with 50.1 in June.

The non-manufacturing PMI, which includes services and construction, also contracted, declining to 49 from 50.2 in June. The composite PMI came in at 49.3 compared with a 50.6 reading the previous month.

The grim readings underscore the headwinds confronting the economy with growth already slowing in the second quarter despite solid external demand.