Global bank HSBC said its "flash" index of purchasing managers' sentiment rose to 51.7 in March from February's final reading of 50.4. Any reading above 50 signals expansion in the manufacturing sector.
The pace of expansion was quicker than economists had anticipated, but the index remains below levels hit in January. The report showed a quickening pace of new orders and output.
"March flash manufacturing PMI rebounded to 51.7 on the back of stronger new orders and production growth," Hongbin Qu, HSBC's chief economist for China, said in a statement. "This implies that the Chinese economy is still on track for gradual growth recovery."
The strength of manufacturing in China is considered a barometer of the global economy because of the nation's role as a powerhouse exporter. Because it makes up a large part of China's economy, manufacturing plays an important role in shaping domestic policy.
China's economy has grown at an average of around 10% a year for the past three decades, allowing the nation to rocket past competitors to become the world's second-largest economy. While the growth slowed in 2012 to 7.8%, that figure topped government targets and analyst expectations, signaling an exit to the slowdown that had worried economists.
Qu said Thursday that the government is likely to maintain current policy.
"Inflation remains well behaved, leaving room for Beijing to keep policy relatively accommodative in a bid to sustain growth recovery," Qu said.
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