A key measure of industrial health, the manufacturing purchasing managers' index came in at 50.1 this month, according to the National Bureau of Statistics (NBS).
That sits just above the 50-point mark separating contractions from expansions.
The figure had not been positive since March.
December's reading was significantly higher than a Bloomberg forecast based on a survey of economists, which had predicted the figure to hold steady at 49.2.
Additionally, the non-manufacturing PMI rose to 50.2 in December, NBS data showed, returning to positive territory after an unexpected dip to 49.5 the previous month.
NBS statistician Huo Lihui hailed "an overall improvement in the country's economic activity", according to a statement offering official interpretations of the data.
The indicators are encouraging signs for policymakers in Beijing battling persistent headwinds in the domestic economy.
Entrenched consumer caution fuelled by a years-long debt crisis in the property sector has weighed on China's growth outlook, spurring calls for leaders to step up support measures.
In a stark indication of China's consumer woes, retail sales grew in November at their slowest pace in nearly three years, official data showed this month.
Reversing the decline has become a top priority for leaders and was a key theme at a closely watched political meeting in Beijing this month focused on economic planning.
Authorities announced Tuesday that 62.5 billion yuan ($8.9 billion) in new funds would be directed towards an existing consumer goods trade-in scheme in the new year.
The subsidies designed to encourage spending will apply to certain big-ticket items including refrigerators, televisions, washing machines, automobiles and computers.
Wednesday's PMI expansions "point to a partial reversal of the recent weakness in investment spending and construction activity", wrote Julian Evans-Pritchard of Capital Economics in a note following the data release.
Momentum in the country's service sector "remains weak", while growth in manufacturing is heavily dependent on exports, he warned.
"The big picture is that the structural headwinds from the property downturn and industrial overcapacity are set to persist in 2026," he added.
Xi says China to hit 2025 growth target of 'around 5 percent'
Beijing (AFP) Dec 31, 2025 -
China's economy is expected to have grown "around five percent" in 2025, President Xi Jinping said on Wednesday, despite "pressure" during a year he described as "very unusual", state media reported.
The announcement came in Xi's New Year's Eve speech to a top political consultative body that was reported by state news agency Xinhua.
Such an annual expansion would be in line with the official government target and on par with the five percent growth recorded in 2024.
The world's second-largest economy has come under increasing pressure in recent years, with consumer sentiment having so far failed to recover from a Covid-19 pandemic-induced plunge.
A persistent debt crisis in the property sector, industrial overcapacity and heightened trade conflict with Washington have also darkened the outlook.
"We faced challenges head-on and strived diligently, successfully achieving the main goals of economic and social development," Xi said in his remarks to the Chinese People's Political Consultative Conference, according to Xinhua.
"The growth rate is expected to reach around five percent," he said.
Experts widely expect Beijing to announce a similar economic growth target for 2026 at a major annual political gathering in early March.
Xi said in a later speech broadcast to the nation that China had "overcome many difficulties and challenges" in recent years but that its economic, technological and defence capabilities had improved.
"Many large AI models have been competing in a race to the top, and breakthroughs have been achieved in the research and development of our own chips," Xi said, according to Xinhua.
China should "focus on our goals and tasks, boost confidence, and build momentum to press ahead" in the coming year, he said.
Data released on Wednesday offered a positive sign for policymakers, with factory activity in December inching into expansionary territory to snap an eight-month streak of contraction.
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