A worker walks past steel products in Rizhao, Shandong province. China's preliminary Purchasing Managers Index was 49.7 in May, according to HSBC Holdings Plc and Markit Economics. Provided to China Daily

Index pulled up by output and new orders while employment still lags behind

The preliminary Purchasing Managers Index for Chinese manufacturing in May beat expectations with a five-month high, suggesting the world's second-largest economy is stabilizing.

The PMI, released by HSBC Holdings Plc and Markit Economics, was 49.7, compared with a 48.3 median estimate from analysts. April's final reading was 48.1. Still, a reading below 50 reflects contraction. A final May reading is expected on June 3.

"Tentative signs of stabilization are emerging, partly as a result of the recent mini-stimulus measures and lower borrowing costs," HSBC economist Qu Hongbin said.

Manufacturing under lingering pressure

Feb manufacturing PMI drops to 50.2

Output and orders rebounded. The new order sub-index rose to 50.2 from 47.4 in April, the highest reading so far this year. The new export order sub-index rose to 52.7, compared with 48.9 in April, the highest since November 2010. The manufacturing output index rose to a four-month high of 50.3 in May, up from 47.9 in April.

Deinflationary pressure eased. Output prices rose for the first time since November.

"Momentum for recovery has strengthened," Guan Qingyou, assistant dean of Minsheng Securities Research, said. He repeated his forecast that economic growth for the second quarter may stay flat with the first quarter's 7.4 percent.

Some data worried economists. The employment sub-index shrank more quickly, according to HSBC and Markit. Qu said the jobs measure "implies that this month's uptick in sentiment has not yet filtered through to the labor market".

"Downside risks to growth remain, particularly as the property market continues to cool", Qu said. "More policy easing is needed to put a floor under growth in the coming months," Qu added.

"A few industries that are sensitive to the mini-stimulus may have started to benefit from the pro-growth policies," Xu Gao, chief economist for Everbright Securities Co, was cited by Bloomberg News as saying. "It's still too early to conclude that a quick rebound is taking place in the Chinese economy," as funds available for projects on the ground remain tight and property weakness persists.

Jiang Chao, an analyst with Haitong Securities, said it is still too early to conclude the economy has touched bottom and is on track for a steady recovery.

He cited the inconsistency between the PMI preliminary reading and May's electricity output. So far this month, power output grew 4 percent, slower than the 4.4 percent gain for the last 10 days of April.