(Yicai) Oct. 31 -- Activity in China’s manufacturing sector climbed back above the threshold of 50 to re-enter expansion territory in October after five months of contraction, indicating that the hefty government economic stimulus package rolled out last month is having the desired effect, according to the latest data.

The manufacturing purchasing managers’ index came in at 50.1 in October, up 0.3 percentage point from September, and the second straight month of gains, according to data released by the National Bureau of Statistics today. A reading above 50 indicates expansion and one below contraction.

The October PMI shows that the economy has started to stabilize and factories’ operations and production are making a full recovery, said Zhang Liqun, special analyst at the China Federation of Logistics and Purchasing. Since the central government signaled its support for a robust economic stimulus package last month, authorities have been rolling out numerous measures, boosting market confidence, he added.

The new orders sub-index for small and medium-sized enterprises is still below the benchmark of 50, Zhang said. This means that over 60 percent of businesses do not have enough orders. This lack of demand is holding back production and operations in a major way.

It is necessary to continue to strengthen policies to boost demand, and in particular, to increase government investment in public goods, so that state funds can drive the recovery of production and investment, spur employment and lift people’s purchasing power, Zhang said.

Although external demand continues to slow, domestic demand has rebounded significantly, said Wen Tao, an expert at the China Logistics Information Center. The number of manufacturers reporting weak demand declined 3 percentage points from the previous month, he said, citing the poll.

Of the sub-indexes, the business activity expectation sub-index climbed 2 percentage points over the period to 54, the highest level in the past four months. The new orders sub-index gained 0.1 percentage point to 50 and the new export orders sub-index dipped 0.2 percentage point to 47.3.

The non-manufacturing PMI climbed 0.2 percentage point in October month on month to 50.2, the NBS said. Of this, the business activity index in the construction industry slumped 0.3 percentage point to 50.4 and that in the services sector advanced 0.2 percentage point to 50.1.

The composite PMI, which includes both the manufacturing and non-manufacturing sectors, gained 0.4 percentage point in October from September to 50.8, indicating that Chinese businesses are growing.

Editor: Kim Taylor