China's latest manufacturing data suggesting more brisk expansion in factory activity has shored up market confidence in a broader economic recovery.

The purchasing managers' index (PMI) for China's manufacturing sector came in at 52.6 in February, up from 50.1 in January, the National Bureau of Statistics (NBS) said Wednesday in a statement. This figure marked the strongest level since April 2012.

A reading above 50 indicates expansion, while a reading below 50 reflects contraction.

Thanks to government pro-growth measures and the fading COVID impact, factory production and market activity returned to normalcy at a quicker pace last month, indicating continued improvement in the economic climate, senior NBS statistician Zhao Qinghe said.

Of 21 surveyed industries, 18 saw stable expansion. Zhao especially stressed the sound performance of key industries, including equipment and high-tech manufacturing, and consumer products production.

Breaking down the headline figure, the production index gained 6.9 percentage points from a month earlier to 56.7, suggesting expedited production, and market demand also kept rising as the new orders index reached 54.1, up 3.2 percentage points.

The PMIs for large, medium-sized, and small enterprises stood at 53.7, 52 and 51.2, respectively, all well above the boom-and-bust line. This was the first time small firms saw their PMI returning to positive territory since May 2021.

Market confidence also improved significantly. The business outlook index stood at its best level in 12 months, with the optimism shared by all the surveyed industries, especially the automobile, general equipment, textile, and agricultural product processing industries.

The steadily warming manufacturing sector added to evidence of China's economic resilience, as an array of encouraging figures from rebounding consumption to surging bank loans at the beginning of the year, had already painted a promising picture.

Morgan Stanley Chief China Economist Robin Xing believes China's economic recovery momentum is being sustained as the country's growth-focused policy pragmatism has revived business and job confidence. "We see GDP growth reaching 5.7% in 2023, contributing 40% of global economic growth."

While the prospects are bright, China's economic recovery would be not without challenges.

Wednesday's data showed over 50% of surveyed manufacturing enterprises were still plagued by a lack of orders, which according to Zhao with the NBS, means that insufficient market demand remains a prominent problem and more needs to be done to reinforce the foundation of the economic recovery.

Measures are in the pipeline. According to an earlier State Council executive meeting, China aimed to consolidate and expand the momentum of its economic rebound, accelerate the recovery of consumption, and stabilize foreign trade and investment.

The Chinese economy will see an overall improvement this year, Kang Yi, head of the NBS, said.

With the new-phase COVID response and implementation of various pro-growth measures, factory production and people's normal lives will be restored at a faster pace and the internal economic driving force will continue to gather strength, he added.

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