The PMI data is published monthly, and a reading above 50 indicates expansion, while a reading below that represents contraction. The July PMI was 47.8.
New orders, including export orders, fell at a faster rate than in July, as did employment. The only reported increases are in backlogs of work, which are increasing at a faster rate than in July, and stocks of finished goods, which are slowing. Suppliers' delivery times are lengthening, although at a slower rate than last month, the report said.
He Fan, chief economist at Caixin Insight group said: "The Caixin Flash China General Manufacturing PMI for August has fallen further from July’s two-year low, indicating that the economy is still in the process of bottoming out."
Overall, however, the likelihood of a systemic risk remains under control and the structure of the economy is still improving, He said.
"There is still pressure on the front of maintaining growth rates, and to realise the goal set for this year the government needs to fine tune fiscal and monetary policies to ensure macroeconomic stability and speed up the structural reform. This will lead the market to confidence and renew the vigour of the economy," He said.
The flash index is published on a monthly basis ahead of official PMI data.
The estimate is based on approximately 85 - 90% of total PMI survey responses from over 420 manufacturing companies each month and is designed to provide an indication of the final PMI.
China's official manufacturing index has remained at or around 50 since the start of 2015.
Chinese premier Li Keqiang called this week for faster development of the country's manufacturing sector to boost the Chinese economy, describing manufacturing as a "pillar industry" that needs to see more innovation and start ups nationwide.