Manufacturing PMI, the official gauge of factory activity in China, slipped into contraction territory for the third time this year in August.
The official reading has come in at 49.7, down from an even-50 for July.
50 is the line between contraction and expansion.
Ning Jizhe, vice-Chair of the National Development and Reform Commission, says despite the shift into contraction, the PMI is still showing signs it will improve in the future.
"Yes, I have seen the data on the manufacturing PMI, and it has gone from 50 to 49 and something. But this is a small margin of fluctuation. The PMI index is composed of many categories. But we think there are many signs that it will improve in the future. It will improve in the future."
Observers are attributing the declining PMI mostly to the phasing-out of traditional manufacturing, as well as bad weather, the air pollution controls put in around Beijing ahead of the parade, as well as low commodity prices.
Meanwhile, the service sector is also showing signs of cooling.
However, the PMI for the non-manufacturing sector still remains well above the 50-level, even though it dipped half-a-percent to 53.4 in August from 53.9 in July.
He Weiwen with the Chongyang Institute for Financial Studies at Renmin University says part of the slight decline can be put on the volatility of the Chinese stock markets.
"I think the important factor is the performance of the financial sector. The stock market performance in the first half of this year was exceptionally well so this upgraded the growth rate of GDP by half a percentage point for the first half of this year. But since the stock market bust in the previous two months, the non-manufacturing sector thus performed badly."
The Chinese stock market began their decline in mid-June after a bullish first-half.
Shanghai has plunged nearly 40-percent since the volatility first began.
To shore up the market, China's central bank last week cut its benchmark interest rates for the fifth time since November.
In the latest move, the government is encouraging listed companies to merge and restructure, pay cash dividends, and buy back their own shares in an effort to encourage investors to hold stocks for the long term.
He Weiwen says more stimulus measures may still be needed to promote structural reforms, rather than simply bailing out the markets in the short-term.
"All the measures regarding the fiscal and monetary are not enough, as has been proved in the past few months. So the government will continue to push up the real economy the development, to encourage the mass innovation and to encourage the development of the hi-tech industry and so on."
China's GDP expanded 7-percent year on year in the first half of this year.
This is still in-line with the Chinese government's full-year target of 'around' 7-percent.
Both the IMF and Goldman Sachs are predicting full-year growth in China to come in at around 6.8-percent.
For CRI, I'm Luo Wen.
