access to credit and investment incentives, which have gone disproportionately to the state sector, particularly since the financial crisis of 2008-2009.
Government intervention to mask debt problems where they do appear runs the risk of a socialisation of losses, the his Global Insight analysts warned.
"Production can continue (hence contributing to GDP), and employment can remain tight. Our fear, therefore, is that whilst activity is resuming, economic efficiency is declining. This has negative longer-term consequences."
Overall, China's economic health has improved since September, with an array of indicators from factory output to retail sales and investment showing Beijing's pro-growth policies are starting to gain traction.
Output, new orders and new export orders all improved, the official PMI showed, but a sub-index tracking employment deteriorated. Private firms generally account for more new jobs than does the state sector.
China's annual economic growth dipped to 7.4 percent in the third quarter, slowing for seven quarters in a row and leaving the economy on course for its weakest showing since 1999.
Given the recent signs of recovery, many analysts expect the economy to snap out of its longest downward cycle since the global financial crisis, and start to trend upwards in the fourth quarter.
The end of a destocking cycle and a greater pace of investment are expected to keep driving up domestic demand.
Economists also warn of downside risks from still cloudy external markets. The European debt crisis and listless U.S. economy continue to crimp demand from China's two largest trade partners.
China's central bank has moved cautiously in easing monetary policy to underpin economic growth, wary of reigniting inflation and fanning property prices which are still high.
It cut interest rates twice in June and July and lowered banks' reserve requirement ratio by 150 basis points in three stages since last November, but has refrained from further cuts since July. The authorities have opted to inject liquidity via open market operations to pump short-term cash into money markets.
The official PMI generally paints a rosier picture of the factory sector than the HSBC PMI because the official survey focuses on big, state-owned firms, while the HSBC PMI targets smaller, private companies. There are also differing approaches to seasonal adjustment between the two surveys.