Washington and Beijing have so far hit each other with punitive tariffs covering more than $360 billion in two-way trade, damaging manufacturers in both countries.

The Purchasing Managers' Index (PMI), a gauge of Chinese factory conditions, came in at 49.7 for the month, slightly up from June's figure of 49.4, according to the National Bureau of Statistics (NBS).

The reading falls below the 50.0 mark separating expansion from contraction. Economists surveyed by Bloomberg had predicted a reading of 49.6.

"There are many positive changes going on in the manufacturing sector," said NBS analyst Zhao Qinghe in a statement, pointing to industries like tobacco, paper and IT equipment where activity expanded.

The new export and import orders sub-index rose from June but also remained in contraction territory.

Beijing has enacted massive tax cuts and tried to better funnel financing to small and medium sized companies in a bid to combat the slowdown.

The policies have "further reduced the burden on enterprises and played an important role in stabilising corporate confidence," Zhao said.

But while momentum picked up at large scale manufacturers during the month, it retreated at small- and medium-sized businesses.

Chinese and US trade negotiators met in Shanghai on Wednesday in a bid to bring an end to the year-long trade war.

The data "still appear consistent with a renewed slowdown in year-on-year growth in industrial output and broader economic activity," said Julian Evans-Pritchard of Capital Economics in a note.

"With the headwinds to growth from US tariffs, cooling global demand and tighter property controls likely to intensify, we continue to anticipate further monetary easing in the coming months," he added.