Activity at China's small and mid-sized firms expanded this month, according to a private survey of nationwide factories.
The Markit/Caixin manufacturing Purchasing Managers' Index (PMI) came in at 50.1 for in September, data showed on Friday, a touch above the 50 reading recorded in August but below July's 50.6 reading.
The 50 barrier separates growth from contraction.
Output and total new orders expanded marginally, while firms raised their purchasing activity for the third month in a row, Markit/Caixin said in a statement accompanying the data. But cost-cutting initiatives contributed to lower employment, they flagged.
In reaction, mainland equity markets edged slightly higher while Hong Kong stocks were little changed from previous levels, down 1 percent. The Australian dollar—considered a proxy for China plays—was also flat at $0.7627 U.S. cents.
"The readings for the manufacturing PMI over the past three months seem to indicate that the economy has begun to stabilize," Zhengsheng Zhong, director of macroeconomic analysis at CEBM Group, said.
"But given that the growth rate of fiscal income has slowed recently, while expenditures have swung, there is insufficient momentum to drive future economic growth, and there is a risk that industrial output may decline," he warned.
Indeed, Friday's report comes amid mixed views about the outlook for the world's second-largest economy.
On one hand, August saw industrial firms record their fastest rate of profit growth in three years, Tuesday data showed.
But the property market, which contributes as much as a third to gross domestic product, has re-ignited worries of an asset bubble. Average home prices in 70 major cities spiked 9.2 percent on-year in August, government data showed earlier month, higher than July's 7.9 percent increase.
Regardless, the People's Bank of China isn't seen as likely to take any aggressive action, if at all.
Ballooning asset bubbles and rising financial leverage were increasingly narrowing the scope for further liquidity and credit easing, Societe Generale explained in a Wednesday note. "Amid the private sector's weak investment appetite, the central bank cannot afford to conduct full-front tightening but has to rely on delicate adjustments and targeted measures," the note said.