China reported Monday that its official manufacturing Purchasing Managers' Index for the month of July came in at 51.4 — just shy of expectations.
Levels above 50 indicate expansion, while levels below signal contraction.
In a release, National Bureau of Statistics Senior Statistician Zhao Qinghe attributed the slowdown in manufacturing activity to adverse weather conditions and flooding in parts of the country and routine maintenance in some enterprises. However, imports and exports continue to grow from a month ago, the bureau's statistics indicated.
Although indicators for production and new orders both fell from a month ago, the difference has narrowed between the two figures, indicating improving supply-demand dynamics, he added.
Rising prices however were a "bright spot" as the purchasing price and producer price sub-indices jumped, quelling concerns about deflation in the commodities sector, wrote ANZ Senior Economist Betty Rui Wang in a note following the data release on Monday.
Wang said the bank expects a rebound in coming months due to climbing prices and the construction sector index rising to a three-year high in July, point to "vibrant momentum thanks to a robust pipeline of infrastructure projects."
China's official services PMI meanwhile fell to 54.5 in July from 54.9 in June.
Despite the on-month decline in official services PMI, July's reading was still higher than the average for the first half of the year, Zhao said.
Consumer spending related to the the summer season such as rail and air travel, accommodation, food and beverage was buoyant, he added.
While the manufacturing PMI data tends to be more closely watched, China's pivot toward domestic consumption and away from investment-led growth means the services sector accounts for a bigger slice of the mainland economy. The services sector includes consumer industries such as real estate, retail and leisure.
Earlier this month, China reported second-quarter GDP growth of 6.9 percent that topped expectations, but market watchers are expecting the economy to slow due to tightening policies in the property market and the government's deleveraging campaign.
"Something has to give if they are curtailing credit," said Vishnu Varathan, Mizuho Bank's head of economics and strategy.