CHINA’S factory activity swung to growth in May from decline, a private sector survey showed Thursday, driven by improved production and demand, helping firms that have been hit by slumping profits.

The Caixin/S&P Global manufacturing purchasing managers’ index (PMI) rose to 50.9 in May from 49.5 in April, above the 50-point index mark that separates growth from contraction.

The reading is a stark contrast to a deeper contraction activity seen in the official PMI released Wednesday.

China’s economic recovery has been uneven, with economic indicators for April showing imports, factory gate prices and property investment all falling.

“We need more time to see whether the improvement would be sustained, but it is a piece of good news for the Chinese economy,” Zhou Hao, economist at Guotai Junan International, said in a note.

“Further policy support is still required to boost domestic demand,” he added.

The manufacturing subindexes showed factory output rose at the fastest clip in 11 months while new orders including new exports expanded in May.

However, business confidence for the coming 12 months fell to a seven-month low amid concerns over global economic prospects.

Firms, grappling with a slump in industrial profits in April, remained cautious about hiring, with the employment subindex shrinking for the third consecutive month in May.

Insufficient demand is the main constraint for the recovery and deflation risks are rising in the world’s second-biggest economy, analysts say.

“Current economic growth lacks internal drive and market entities lack sufficient confidence, highlighting the importance of expanding and restoring demand,” said Wang Zhe, senior economist at Caixin Insight Group.

Compared with the PMI survey by the National Bureau of Statistics (NBS), the Caixin report compiled by S&P Global is believed to focus on more export-oriented and small firms in coastal regions and is based on a survey sample of around 650 private and State-owned manufacturers. The NBS’ manufacturing report has a sample base of 3,200 companies. (SD-Agencies)