The index gauges conditions at Chinese factories and mines. In photo: Employees work at a food processing factory in Yichang, Hubei province. Photograph: (Reuters)
The purchasing managers' index is the first indicator of an economy's health
Manufacturing activity in China expanded at its fastest pace in more than two years last month on improving production and demand, an official measure showed Tuesday, boding well for the world's second-largest economy.
Investors closely watch the purchasing managers' index (PMI), which gauges conditions at factories and mines, as the first indicator of the health of the economy each month.
The PMI came in at 51.2 for October, its highest since July 2014, figures from the National Bureau of Statistics (NBS) showed.
It rose from September's 50.4 and was well ahead of the median forecast of 50.3 in a Bloomberg News survey of economists.
A figure above 50 signals expanding activity, while anything below demonstrates shrinkage.
"Production and market demand is picking up again, accelerating expansion," NBS analyst Zhao Qinghe said in a statement.
But Zhao added that downward pressures remain on imports and exports due to the sluggish recovery in global growth.
The key manufacturing sector has been struggling for months in the face of sagging world demand for Chinese products and excess industrial capacity left over from the country's infrastructure boom.
"This might be as good as it gets," HSBC Holdings economic researcher Frederic Neumann told Bloomberg.
"A generous stimulus injected earlier this year is still winding itself through the economy," he added, and with the government now "tapping the brakes" in the property sector "growth will likely cool again in the coming months".
China is a vital driver of global growth, but its economy expanded only 6.9 per cent in 2015 -- its weakest rate in a quarter of a century -- and has slowed further this year.
Beijing has said it wants to reorient the economy away from relying on debt-fuelled investment to boost growth and towards a consumer-driven model, but the transition has proven challenging.