
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.
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