China's manufacturing Purchase Management Index (PMI) compiled by the National Bureau of Statistics (NBS) and the China Federation of Logistics and Purchasing rose 0.2 percentage point from a month earlier to 50.3 in July, beating market consensus of 49.8. The official PMI plunged 0.7 percentage point to 50.1 in June.

"The modest recovery is attributed to the stable operations of large enterprises," Zhao Qinghe, NBS's senior statistician says in a statement on the bureau's website on August 1.

Large enterprise PMI rose 0.4 percentage point to 50.8 in July from June, medium-sized enterprise fell to 49.6 from 49.8 one month earlier, and small enterprise PMI increased 0.5 percentage point to 49.4 from June.

That also partly explains the disparity between the official PMI figures and HSBC's preliminary reading, as the latter "mainly consists of small and medium size enterprises in its sample", Zhu Haibin, J.P. Morgan China chief economist writes in a note.

Another interesting trend is the larger expansion in the production side than demand side. The business expectation index snips the downtrend for three consecutive months to climb 2.3 percentage points to 56.4 in July, while the new orders and the raw material inventory indexes both rose 0.2 percentage point to 50.6 and 47.6 in July, respectively.

"Overall speaking, the production recovery is due to the expectation of improvement driven by the policy fine-tuning," Peng Wensheng, chief economist from China International Capital Corporation (CICC), comments.

The raw material purchase price index jumped 5.5 percentage points to 50.1, signalling a reduced decline in producer price index (PPI), Peng adds.

J.P. Morgan expects China's economy to grow 7.4% in the third quarter, similar to the forecast by CICC.