The state-affiliated China Federation of Logistics and Purchasing reported its purchasing managers index, or PMI, rose to 53.4 last month, from 52.2 in February and 52.9 in January.

The rebound in demand was partly due to the dampening effect of a weeklong holiday for the Lunar New Year in February, it said. The rise ended a three-month decline, though the reading has remained above 50, the benchmark for expansion, for over two years.

A second, competing survey, the HSBC ( HBC - news - people ) China Manufacturing Purchasing Managers Index, edged up to 51.8 in March from a seven-month low of 51.7 in February.

Economist Hongbin Qu of HSBC said the figure showed the pace of manufacturing stabilizing.

"This implies economic growth is only moderating rather than slowing too much. More importantly, price hikes also started to slow in March," Qu said.

Strong new orders for vehicles, machinery, equipment, furniture and garments suggest that demand is picking up in those key sectors, economist Jun Ma of Deutsche Bank ( DB - news - people ) Hong Kong said in an analysis Friday of the government's survey.

China's economic outlook is improving as "reduced inflation pressure will lead to less aggressive policy tightening," he said.

Inflation remained elevated in February at 4.9 percent, exceeding analysts' forecasts and above the government's 4 percent target for the year. Food price inflation unexpectedly accelerated to 11 percent from January's 10.3 percent rate.

But many economists forecast that price pressures will moderate by midyear.

The HSBC survey covers 400 companies. The federation's report covers 820 companies across a range of industries and is seen an indicator of future trends.