Big firms pick up, smaller ones struggle

China's factory activity was slightly stronger than expected in July, a government survey showed on Thursday, but analysts cautioned against rushing to a conclusion that the world's second-largest economy had arrested its slowdown.

In contrast to the official report, a private survey focused on smaller firms suggested manufacturing remained under pressure in an economy that has slowed in nine of the past 10 quarters.

The government has tried to allay concerns the economy has slowed more than expected as it pushes through reforms, recently announcing a series of targeted support measures and expressing confidence of meeting its 7.5 percent growth target this year.

"The government needs to do more to strengthen this momentum if you look at the official figure. There are still a lot of uncertainties in the economy," said Haibin Zhu, chief China economist at JPMorgan Chase in Hong Kong.

The official PMI, which focuses on big and State-owned firms, published by the National Bureau of Statistics, rose to 50.3 in July from 50.1 in June. Economists had expected it to fall to 49.9.

In contrast, the HSBC Purchasing Managers' Index (PMI), compiled by Markit Economics Research, showed activity shrank for a third straight month as it fell to an 11-month low of 47.7, matching a preliminary figure last week.

A reading above 50 indicates expanding activity while a figure below that level points to a contraction.

"The HSBC PMI concentrates on small companies, so we can see the small companies are more affected by the liquidity tension apparently," said Wei Yao, China economist at Societe Generale in Hong Kong.

"I think the official report does offer a slim hope that the economy is stabilizing at least, but it is still a bit early to conclude that things have turned around decisively."