China's factory activity unexpectedly contracts in July, ending 4-month expansion streak

China's factory activity unexpectedly contracted in July, snapping four straight months of expansion as the export rush that powered a second-quarter rebound began to unwind, piling pressure on Beijing to boost domestic demand.

The official manufacturing purchasing managers' index fell to 49.2 in July from 50.3 in June, National Bureau of Statistics data showed Friday, dropping below 50 threshold that separates expansion from contraction, and missing economists' median forecast of 50.0.

The reading snapped four straight months of expansion and marked the weakest since February.

The print lands a day after the country's top policymakers acknowledged "difficulties and challenges facing the economy" at its mid-year meeting, pledging to accelerate fiscal spending and roll out "incremental policies" to shore up growth in the second half.

China's economy in the second quarter expanded 4.3% from a year earlier, the slowest pace in more than three years, missing the lower end of the full-year target of 4.5% to 5%.

Exports have been one of the economy's few reliable growth engines this year — and that engine is now showing signs of strain. "U.S.-bound shipments fell outright for the first time in several months," according to a survey conducted by China Beige Book.

The research firm found factory activity decelerated in July, with manufacturing posting the worst performance on employment as job growth deteriorated across all sectors surveyed from a year earlier.

That marks a sharp reversal from June, when shipments to the U.S. rose 14%, helping overall exports surge 27% — the fastest pace in nearly five years — as businesses frontloaded orders ahead of expected higher American tariffs later in the summer. Manufacturers had braced for additional levies from President Donald Trump's Section 301 probes after the 10% broad-based duty expired on July 24.

Retail sales fell in July from both the prior month and a year earlier, China Beige Book found, with travel and restaurants seeing a sharp on-year downturn.

— CNBC's Evelyn Cheng contributed to this report.