China and the US are currently involved in a trade war slapping billions of dollars of tariffs on each other goods following President Donald Trump's demand that Beijing bring down the trade deficit to USD 375 billion.
Beijing and Washington started the trade war last month each imposing 25 per cent tariffs on USD 34 billion of each other's exports.
Later they slapped another USD 16 billion on each other's goods on August 23.
Trump was reportedly keen to move ahead with a plan to impose tariffs on USD 200 billion of Chinese imports next week on which Beijing said it would retaliate.
The trade war seems to have begun impacting China - often referred to as the world's factory - as it is the biggest global exporter.
"China is quickly losing steam amid threats of a full-blown trade war," the Hong Kong-based South China Morning Post reported.
The "new export order" sub index in China's official purchasing manager index – the first available indicator to gauge the export sector's health every month, fell sharply in August even when only a small portion of Washington's threatened additional tariffs on Chinese products kicked in, according to the National Bureau of Statistics.
The sub index dropped by 0.4 points to 49.4 in August, the lowest since the China-US trade tension escalated in March, the Post quoted data released by the official statistics agency.
It was also the third month that the export order sub index had been below 50 – under 50 means a contraction – marking the first time China has had a three-month export downturn in two years, it said.
Small and medium-sized exporters were hit particularly hard, with readings of 47.4 and 48 respectively, while large firms had an index reading of 50.2, a report by the China Federation of Logistics and Purchasing, the agency that compiled the purchasing manager index (PMI) said.
At the same time, the import sub index fell to 49.1 in August from 49.6 in July, the Post report said.
The data was released ahead of Trump's plan to impose tariffs on USD 200 billion of Chinese imports next week.
The ministry of commerce said Beijing was anxiously watching the tariff development in the US, China's biggest export market, the Post reported.
"If the US goes ahead with the USD 200 billion plan, the impact on Chinese exports will be material," it quoted a source in the ministry, who declined to be named, as saying.
Zhang Jun, chief economist of Morgan Stanley Huaxin Securities, said the outlook for China's export performance is gloomy in the coming months because many exporters have already "front-loaded" their shipments in the face of additional tariffs from the US.
He said there are few measures Beijing can take to revive its overseas sales. "The government emphasis will be on boosting domestic demand to offset declines in exports," he told the Post.
China has started to roll out stimulus measures, such as encouraging local governments to sell bonds to raise money for infrastructure spending, and rearranging its economic priorities to keep overall economic growth on track.