Factory activity contracted in August, after five successive months of expansion, indicating that China's economy will face more downward risks in the third quarter of the year, experts said.

The official manufacturing Purchasing Managers Index dropped to 49.7 last month, the weakest in three years, the National Bureau of Statistics said on Tuesday.

It declined from 50 in July and 50.2 in June, as both new orders and new export orders retreated at a faster rate. A reading above 50 means expansion.