China's domestic manufacturing activity expanded by the most in four months in July, indicating sustained economic momentum, a private survey showed yesterday.

The Caixin China General Manufacturing Purchasing Managers’ Index rose to 51.1 from June’s 50.4 in the survey by financial information service provider Markit and sponsored by Caixin Media.

It was the second consecutive month for the reading to stay above the 50-point mark that separates growth from contraction.

“Although the sub-index measuring stocks of finished goods remained in contraction territory and slid further, the sub-index showing quantity of purchases indicated the strongest rise in buying activity for five months, pointing to moderate growth in manufacturing production going forward,” said Zhong Zhengsheng, director of macro-economic analysis at CEBM Group, a subsidiary of Caixin Insight Group.

“Operating conditions in the manufacturing sector improved further in July, suggesting the economy’s growth momentum will be sustained.”

He said financial regulators will maintain a relatively tight stance to meet the official tasks of deleveraging in financial and non-financial industries.

The Caixin readings diverged from an official PMI survey which showed that growth in the manufacturing sector cooled slightly last month.

On Monday, it was revealed that China’s official PMI slowed to 51.4 in July from June’s 51.7.

Economists attributed the decline largely to hot weather and flooding, and said a positive economic outlook remained unchanged.

Divergence in the two indexes is usually a result of the Caixin PMI’s smaller sample size rather than anything fundamental in China’s economy, said Jonas Short, who heads the Beijing office of investment bank Sun Hung Kai Financial.

The official PMI samples 3,000 manufacturers in China. The Caixin PMI samples more than 500 manufacturers and is volatile due to its small sample size and less involvement of large firms.

Despite mixed signals, analysts are still generally optimistic about the outlook for China’s exports, even if there is a slight dip in July.

“We are not that worried about the export outlook for China in the second half,” said ANZ senior China economist Betty Wang.

The broader consensus among China watchers is that economic growth will cool in coming months as a government crackdown on financial risks raises borrowing costs, squeezing profits and output. Yet, there appears to be more than enough momentum to reach the government’s economic growth target of around 6.5 percent for the year.

Both output and new orders rose at the fastest rate for five months, helped by a solid improvement in new export sales.

Chinese goods producers in July were able to raise output prices the most since March, yesterday’s PMI showed, as input inflation also accelerated, though the price gains were much milder than those seen around the turn of the year.

However, companies maintained a relatively cautious stance toward employment, with staff numbers falling again in July.

That coincided with a subdued level of confidence in the business outlook, with optimism about the year ahead dipping to an 11-month low, the report said.

On the whole, while China’s manufacturing sector has remained resilient, companies’ outlooks have now worsened or held steady since hitting a nearly two-year high in February.

That turning point roughly corresponds to when the central government stepped up a campaign to rein in debt risks through a concerted deleveraging effort, which has driven up borrowing costs.

Official figures showed China’s second-quarter GDP grew 6.9 percent year on year, the same pace as the first quarter.