China's manufacturing activity surged to a two-year high in January on higher domestic and foreign orders, according to a closely watched preliminary private survey.

The HSBC flash purchasing managers' index (PMI) rose to 51.9 in January, the highest since January 2011. The index, compiled based on 85 percent to 90 percent of total responses of a survey involving more than 420 companies, showed a reading of 51.5 in December. A level above 50 indicates an expansion in the sector from the previous month.

"At 51.9, January's HSBC China manufacturing PMI rose for the fifth consecutive month to the highest level in two-years, heralding a good start to the New Year. Thanks to the continuous gains in new business, manufacturers accelerated production by additional hiring and more purchases," Hongbin Qu, chief China economist at HSBC, said in a statement.

"Despite the still tepid external demand, the domestic-driven restocking process is likely to add steam to China's ongoing recovery in the coming months."

Meanwhile, the Flash China Manufacturing Output Index rose to a 22-month high at 52.2, up from 51.9 in December.

The sub-indices for output, new orders and employment that account for three quarters of the flash PMI all showed improvement in January, rising above the 50-mark.

The output index rose to a 22-month high and the employment sub-index showed its highest reading since May 2011.

Demand for Chinese exports also improved slightly in January, with a sub-index rising to 50.1 in January, up from December's 49.2.

The world's second-largest economy has been showing signs of recovery following a two-year slowdown. The index, which is the earliest preview of China's economic health in 2013, is providing further evidence of steady growth.

China's newly appointed leaders have taken steps to help boost economic growth and its manufacturing sector, which contributes largely to the GDP, have seen steady growth recently.

In December, the official PMI reading was at 50.6, a third month of expansion.

In the final quarter of 2012, China recorded a growth rate of 7.9 percent due to an increase in exports and higher government investment in infrastructure. The growth rate for 2012 was the slowest in 13 years at 7.8 percent.

Many analysts are cautiously optimistic about China's economic prospects in 2013 and they called on higher government spending to stabilise growth while exports are expected to remain weak due to lower orders from the eurozone and the US.