Big firms pick up, smaller ones struggle

The better-than-expected official PMI buoyed shares in China and Asia and helped the Australian dollar, considered a proxy for Chinese growth because of the countries' strong trade links, pull away from a three-year low hit in early trade.

The politburo, China's top decision-making body, has pledged stable economic growth in the second half of this year as it presses ahead with reforms and restructuring.

While keeping the door shut for big stimulus, the government has unveiled polices to boost spending in social housing, urban infrastructure, high-speed rail and energy-saving industries, and tax breaks for small firms.

Analysts in a Reuters poll forecast annual GDP growth slowing to 7.4 percent in the third quarter from 7.5 percent in the second. Full-year growth is forecast to be 7.5 percent - in line with the official target.

Factory job losses inevitable

China's leaders are working to turn the economy into one led by domestic consumption and demand from a focus on manufacturing and exports, but those changes raise the possibility of job losses as traditional industries restructure.

A sub-index of the HSBC PMI measuring employment contracted for a fourth month to be at its weakest since March 2009. The official PMI indicates employment has been falling since the middle of last year.

Authorities hope the services sector can pick up the slack, but a failure to keep Chinese in jobs could threaten the social stability and economic prosperity.

More manufacturing job losses look inevitable as Beijing tackles the worst polluters and loss-making companies in sectors gripped by overcapacity as part of its economic reforms.

"With weak demand from both domestic and external markets, the cooling manufacturing sector continued to weigh on employment," said Hongbin Qu, China economist at HSBC.

China's official PMI suggests services are growing faster than manufacturing. The services measure has hovered between 53.9 and 56.7 in the past 12 months, while manufacturing has fluctuated between 49.2 and 50.9.