(Yicai Global) July 31 -- Activity in China’s manufacturing sector increased in July from June but remained in negative territory for the fourth month in a row as overseas orders tumble amid a complicated and savage external environment.

The manufacturing purchasing managers’ index was 49.3 this month, a gain of 0.3 point from June, according to the latest data by the National Bureau of Statistics released today. It has now risen for two straight months but remains below the benchmark of 50, indicating contraction.

Weak demand is the biggest problem, said Zhang Liqun, guest analyst at China Federation of Logistics and Purchasing. Over 60 percent of companies surveyed said that, despite there being a slight uptick in the orders subindex, they do not have enough demand for their wares. As a result, they are cutting back on production, which was reflected by a dip in the production subindex.

The gain in the manufacturing PMI this month is a signal that economic growth continues to gather strength, Zhang said. Confidence appears to be on the rebound and the subindex of expectations in manufacturing and operating activities stood at a high 55.1. Gains in the purchasing volume and raw material inventory subindexes also show that there are signs of recovery in the manufacturing sector, he added.

The new order subindex, an indicator of domestic demand, climbed for the second straight month in July, advancing 0.9 point from June to 49.5. While the new export order subindex, which is a reflection of overseas demand, slumped for the fifth consecutive month, dipping 0.1 point from June to 46.3.

Some of the firms polled said that the main difficulties they face are an external environment that remains complex and unfriendly, shrinking overseas orders and insufficient demand, said Zhao Qinghe, senior statistician at the NBS's Service Survey Center.

The purchasing price subindex surged 7.4 points from June to 52.4, moving into expansion territory for the first time in four months, as the price of raw materials soars.

"The movement in market prices shows that demand is recovering," said Shi Wentao, an analyst at China Logistics Information Center. “Incremental demand is slowly being released."

Editors: Liao Shumin, Kim Taylor