Zhao Qinghe, a senior economist with the National Bureau of Statistics, said it was the 10th consecutive month that the PMI has hovered around 50.5 since October 2012.

The sub-index for new orders in July rose 0.2 percentage point to 50.6, while that for new export orders was up by 1.3 percentage points from June to 49, according to the survey conducted by the China Federation of Logistics and Purchasing.

A reading below 50 indicates a contraction of activity while one above shows expansion.

Most sub-indices increased from a month earlier. The sub-index for production moved up 0.4 of a percentage point from June to 52.4, while that for raw material inventories was up 0.2 of a percentage point from June to 47.6.

The sub-index for the purchasing prices of major raw materials surged 5.5 percentage points to 50.1 in July, while the employment sub-index edged up 0.4 of a percentage point to 49.1.

The business outlook sub-index rose 2.3 percentage points to 56.4, ending a falling streak for the previous three months and signaling that more companies are positive about their business prospects for the next three months.

Zhang attributed the rise in confidence to a series of "mini-stimulus" measures adopted since early July, including the removal of administrative approval procedures, tax breaks for micro businesses and accelerated spending on subsidized housing, urban infrastructure, high-speed rail and energy-saving industries.

The small enterprises' index rose 0.5 of a percentage point to 49.4 in July, the second consecutive monthly gain for the index.

Guan Qingyou, assistant dean at the Minsheng Securities Research Institute, noted: "It is expected that manufacturing in July improved slightly and economic growth in the third quarter could stabilize."

However, the final reading for a separate manufacturing Purchasing Managers' Index released by HSBC Holdings Plc and Markit Economics on Thursday was 47.7, down from June's 48.2. This was also the lowest over the past 11 months.

Analysts said the difference was mainly because of different sampling. The logistics federation increased the number of companies in its survey to 3,000 from 820 from January, while the HSBC report is based on responses from purchasing managers at more than 420 businesses and is weighted more toward smaller private companies.

"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," said Yao Wei, China economist at Societe Generale in Hong Kong.

Despite a higher reading, most local manufacturers interviewed by China Daily still feel the outlook is poor.

"It has been a very bad half year for the company. Regular overseas orders fell sharply and clients ordered much less products per order," said Li Zhongjian, manager of Wenzhou-based Zhejiang Tung Fong Lighter Industrial Co Ltd.

"It's been impossible to make any money because of the situation this year. We're just aiming to survive until the beginning of next year with enough cash to maintain business operations," said Li.

Zhang Guanjin, general manager of Shaoxing Jinyong Textile Co Ltd in Zhejiang province, said increasing labor and material expenses forced the company to reduce the number of its employees from 150 in 2011 to currently fewer than 60.