China's HSBC/Markit Purchasing Manager's Index (PMI) last month expanded to 50.7, the strongest reading since July last year andup from 49.7 in January, on increased overall new orders.

These results show that "that a pick-up in domestic demand has led to a slight improvement in momentum, particularly among small firms, and that downward pressure on inflation has eased", said analysts at Capital Economics.

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February's PMI reading is slightly above the 50 point level that delineates between a monthly contraction or expansion in the country's manufacturing industry.

However, despite the factory activity pick up, unstable export demand and deflationary pressures negatively impacted manufacturers.

The new export orders sub-index fell to 48.5 in February, the sharpest contraction in a year, while both input and output prices dipped for a seventh month.

Manufacturing employment likewise sank for a 16th month, despite a tempered pace of job losses.

Annabel Fiddes, Marki economist comments that "China's manufacturing sector saw an improvement in overall operating conditions in February.

She adds that the renewed fall in new export orders suggests that foreign demand has weakened, while manufacturers continued to cut their staff numbers fractionally.

An official survey (focusing on larger state-owned firms) distributed on Sunday indicates that the factory sector in fact contracted for a second month in a row due to unsteady exports and sluggish investment, supporting expectations of more policy easing.

At present, the largest Asian economy prepares for its most substantial easing campaign to counter the post global crisis deflationary environment of a slowing property market, high debt levels and an overflow of factory capacity.

White activity in China's factory sector picked up, export orders slid and deflationary pressures remained, firming expectations of a further rate cut by the People's Bank of China in the months to follow.

The second largest economy in the world already saw its benchmark lending and deposit rates cut by 25 basis points last week to prop up the economy.

This is the third major policy easing since November and comes ahead of the annual meeting of parliament.

TagsPMI, hsbc purchasing managers index, factory output, easing, policy rates, rate cut, benchmark lending and deposit rates