China's factory activity continued to lose steam in August, suggesting the world's second largest economy faces prolonged downward pressure, official data showed Tuesday.

China's (FXI, quote) manufacturing purchasing managers' index (PMI) came in at 49.7 in August, down from 50 for July, according to data released by the National Bureau of Statistics (NBS) and the China Federation of Logistics and Purchasing.

A reading above 50 indicates expansion, while that below 50 represents contraction.

The index fell into contraction territory for the third time this year, and the August reading was the lowest since August 2012.

The production sub-index posted 51.7 last month, still expanding, but lower from 52.4 for July. The sub-index for new orders came at 49.7, down from 49.9 for July, indicating grim challenges in demand.

"Growth momentum was weak in the manufacturing sector," said NBS statistician Zhao Qinghe, attributing the PMI decline mainly to the phasing-out of traditional manufacturing, bad weather caused by El Nino, air pollution controls around Beijing, and low commodity prices.

Despite the dreary signs, Zhao said signs of improvements have emerged with steady growth in high-end manufacturing and consumer goods production.

However, other analysts were less optimistic after a private survey said manufacturing PMI was 47.3 in August, much lower than the official line, according to a survey by financial information service provider Markit and sponsored by Caixin Media Co. Ltd.

Qu Hongbin, chief China economist at HSBC, said the private PMI indicates that China's (ASHR, quote) external and internal demands remain sluggish and deflation risk is considerable.

"The Chinese economy is spiralling down, with a murky outlook," said Qu, adding that it was necessary for policymakers to continue monetary easing and expansionary fiscal policy.

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