"This PMI indicates the economy is midway through a recovery, despite some slowdown in infrastructure momentum," Credit Suisse economist Dong Tao said in a report.
The PMI is seen by economists as a better measure of China's economic outlook than data such as gross domestic product because it includes forward-looking elements such as new and export orders. CLSA's index is based on a monthly survey of some 400 companies, while the Chinese federation surveys some 700 companies.
The figures add to mounting signs Beijing's 4 trillion yuan ($586 billion) stimulus is starting to show results, boosting domestic demand to offset lackluster exports. Consumer spending, auto sales, bank lending and investment also are up.
The World Bank raised its 2009 growth forecast for China last month from 6.5 percent to 7.2 percent due to the stimulus-driven investment boom. Private sector economists also have raised growth forecasts and say China is likely to be the first major economy to emerge from the world's worst downturn since the 1930s.
CLSA's measure of manufacturing output rose 53.7 in June from May's 52.5, while the Chinese federation's rose 0.2 points to 57.1. CLSA said its measure of export orders rose for the first time in 11 months to 50.9 in June, showing activity expanding slightly following a record contraction in global consumer demand.
"We believe that the rush of government-led infrastructure orders has hit a soft pocket, but the resulting moderation is shallower than we previously anticipated, mitigated by improved production activities and inventory needs," said Tao.
Despite rising activity, CLSA's employment index stood at 50.2 for June, indicating the number of factory jobs grew only slightly from May, when the index was at 50.0, showing no job growth. The Chinese federation released no employment figure, possibly to avoid highlighting the lackluster job news.
As many as 30 million migrants were thrown out of work at export-driven factories when global demand collapsed last year. Some have found new jobs with stimulus-financed building projects but no comprehensive figures have been released.
Beijing's stimulus is aimed at pumping money into the economy through higher spending on construction of highways and other public works. Most of the money has gone to state-owned construction companies and suppliers of steel and cement but some has begun to reach the private sector as they buy materials and hire workers.
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