China's manufacturing activity slowed less quickly in July, than in the previous month, a preliminary survey by HSBC has showed.
The HSBC Purchasing Manager's Index (PMI) rose to 49.5 in July, a five-month high and up from 48.2 in June.
The data comes amid fears of a sharp slowdown in China's economy.
China's economy, the world's second-largest, expanded at an annual rate of 7.6% in the second quarter, the slowest pace of growth in three years.
Some analysts said the data indicated that recent measures implemented by the government to boost growth, including lowering interest rates, had started to take effect and that the economy was likely to rebound in the coming months.
"This suggests the effect of policy easing is being transmitted to the economy and reinforces our view that growth has bottomed in second quarter at 7.6% and will rebound in the third quarter to 8.1%," said Zhang Zhiwei, chief economist at Nomura.
Not fully reversed
The PMI is a key indicator of activity in the manufacturing sector. A reading above 50 shows expansion, while one below that, indicates contraction.
The HSBC PMI reading has remained below the threshold 50 mark for the past nine months.
China's manufacturing sector has been hurt by falling demand from key markets such as the US and eurozone.
And as those regions continue to grapple with economic issues and slower growth, there have been concerns that China's manufacturing may slow further.
Analysts said that even though the latest data indicated that the pace of contraction had slowed, the sector had yet to fully recover.
"China's manufacturing slowdown momentum has yet to be fully reversed," QU Hongbin, Co-head of Asian Economics Research at HSBC said in a statement.
"The current PMI reading remains below break-even level."
