China's manufacturing activity returned to expansion territory in March, offering an early sign that policy support is beginning to feed through to the real economy as measures to boost demand and stabilize growth gain traction, experts said on Tuesday.

However, they cautioned that prolonged weakness among small and medium-sized enterprises highlights lingering structural pressures and underscores the challenge for policymakers in fostering a more broad-based recovery in the world's second-largest economy.

They also said that continued countercyclical policy support, faster rollout of major government investment projects and more targeted measures to ease financing burdens on small and medium-sized enterprises will be key to boosting orders, reviving production and underpinning a solid start to the 15th Five-Year Plan (2026-30) period.

Their comments came as China's official purchasing managers' index for the manufacturing sector stood at 50.4 in March, up from 49.0 in February and returning to expansion territory, according to data released by the National Bureau of Statistics on Tuesday. The subindex for production stood at 51.4 in March, up from 49.6 in February, while the gauge for new orders came in at 51.6, up 3 percentage points from the previous month, the NBS said.

Huo Lihui, an NBS statistician, attributed the rebound in manufacturing PMI to the faster resumption of work and production after the Spring Festival holiday, as well as increased market activity, with the production index and the new orders index both returning to expansion territory.

Wang Qing, chief macroeconomic analyst at Golden Credit Rating International, said sentiment in China's manufacturing sector improved in March, buoyed by optimism after the recently concluded two sessions, the annual gatherings of China's top legislative and political advisory bodies, which underscored that China's macro policies would remain more proactive and effective this year.

That policy tone was reinforced by the People's Bank of China on Tuesday. In a statement released after the first-quarter meeting of its monetary policy committee for 2026, the PBOC said it would continue to implement a moderately loose monetary policy, step up countercyclical and cross-cyclical adjustments, and improve coordination between monetary and fiscal policies to promote stable economic growth and a reasonable recovery in prices.

Meanwhile, major manufacturing segments strengthened further and maintained a mild upward trend. High-tech manufacturing, for instance, posted a PMI reading of 52.1 in March, up 0.6 percentage point from February, and remained in expansion territory for the 14th consecutive month, the NBS reported.

Despite the overall expansion, small and medium-sized manufacturers remained under pressure, with activity still in contraction territory.

According to the NBS, the subindex for medium-sized enterprises rose 1.5 percentage points to 49.0, while that for small enterprises climbed 4.5 percentage points to 49.3, but both remained below the 50-point threshold.

"Soaring raw material prices have dealt a heavier blow to small and medium-sized enterprises, which generally have weaker pricing power and thinner financial buffers," said Bai Wenxi, vice-chairman of the China Enterprise Capital Union.

Huang Yiping, dean of Peking University's National School of Development, said China has policy room, on both monetary and fiscal fronts, to cope with the potential economic headwinds stemming from geopolitical uncertainties in the Middle East.

Foreign companies also remain upbeat about the long-term prospects of China's manufacturing sector.

Markus Kamieth, CEO of German chemical company BASF, said China has moved to the forefront of intelligent manufacturing and green transformation, driven by its scale, speed and innovation capacity.

Philippe Delorme, president and CEO of Finnish elevator giant KONE Corp, said the company's core production base in Kunshan, Jiangsu province, has grown into the world's largest elevator manufacturing base. "This figure demonstrates our commitment to China's economic growth," he added.