(Yicai) June 3 -- Activity in China’s manufacturing sector increased for the seventh straight month in May to the most in almost two years, driven by gains in production and new orders, according to a closely-watched private survey.

The Caixin manufacturing purchasing managers’ index was 51.7 last month, up from 51.4 in April, according to the findings released today by financial media group Caixin. That was the fastest pace of growth since July 2022. A reading above 50 indicates expansion.

The gauge diverged from the PMI published last week by the National Bureau of Statistics, which fell to 49.5 from 50.4, moving into contraction territory after expanding for two straight months.

The Caixin PMI tracks 650 businesses that are generally smaller, privately owned, and export oriented, while the official PMI surveys 3,200 companies that are mostly state owned.

Supply and demand continued to increase last month, per Caixin. Production rose to the highest level since July 2022, while new orders fell slightly but remained in positive territory. New export orders expanded at a much slower rate than in April, which was a 41-month high, as external demand softened. Employment fell for the ninth month in a row, but at a slower pace.

Confidence among manufacturers is relatively stable and the outlook for production and operations improved. Respondents to the survey pointed to a recent rebound in demand due to new products, technological advances, and increasing capacity.

The prosperity index continued to climb, with supply, domestic demand, and exports all expanding to varying degrees, said Wang Zhe, senior economist at Caixin Insight Group. Corporate sentiment remained upbeat, but prices stayed low, leading to caution about hiring new staff, he added.

Heavy pressure on employment and demand that is weaker than supply remain key issues facing the economy, Wang said, adding that China should focus on beefing up policies to steady economic growth, spur domestic demand, and lift employment.

Editor: Emmi Laine