"Meanwhile, the marginal decline in post-production stocks was the first in three months as firms used stocks to help fulfill orders", the survey showed.
"Following a strong performance by the manufacturing sector in H1 this year, and the generally improving global backdrop, we also remain upbeat about prospects for the sector over the remainder of the year", the broker said. Input costs increased led by higher import prices that were driven by a weaker currency.
External demand growth also retreated, with the sub-index for new export orders falling to 50.9 from 52 in June.
Output and new orders increased at slower rates with production rising at its weakest in nine months.
China's outsize manufacturing sector employs tens of millions of workers and the index is widely watched as an early indicator of the health of the economy, the world's second biggest.
The Caixin data came after an official survey showed slightly slower growth in manufacturing activity in July.
This was the first rise in the United Kingdom manufacturing PMI in three months and only partly reversed its fall in June as a stronger flow of new work combined with higher levels of production and a rise in job creation.
"The shift between the old and new momentum of growth is accelerating", Chen said.
More important for the BoE will be Thursday's PMI for the services industry which accounts for about 80 percent of British economic output compared with manufacturing's 10 percent.
The pound jumped to a 10-month high against the United States dollar after the publication of the report. Inventories of finished goods have dropped in each month since January 2015, with July's contraction marked and similar to June. "The positive economic outlook remained unchanged".
"Hot weather and flooding in some parts of China temporarily disrupted business activity and dragged the overall index lower", Betty Wang, ANZ's senior China economist, said in a note.
This has done little to change expectations that monetary policy adjustments from the European Central Bank (ECB) are still some way away.
Rob Dobson, Director at IHS Markit, said the third quarter of 2017 gave manufacturers "a solid footing": "UK manufacturing started the third quarter on a solid footing".