Meanwhile, the large food and beverages sub-sector recorded its highest monthly result since April 2016, while the non-metallic minerals sub-sector, wood and paper products and machinery and equipment all recorded their lowest index results for 2017.
"The goods-producing economy carries strong momentum into 2018, with new order growth at its highest for nearly eight years and rising backlogs of work pointing to the need for further expansion in capacity", Smith added. Furthermore, the rate of expansion quickened to the strongest since December 2012.
The PMI showed steep increases in output, new orders and exports.
Smith said the PMI not only posted the highest reading ever recorded since the survey began in 1996, but its current 37-month sequence of improving business conditions also beat the previous record set in the runup to the financial crisis.
Looking forwards, the future output index strengthened in December, with more than six times as many companies expecting to see growth in 2018 as opposed to those who anticipate a decline.
The moderate decline in headline PMI was mainly attributable to the lower inventory, while production growth remained solid despite the "unfavorable working day effect", as there were two fewer working days in December 2017 compared with previous year, said a CICC research report.
China's GDP, a measure of economic growth, rose by 6.8% year-on-year from July to September, slowing from a 6.9% pace in the first and second quarters.
The Caixin manufacturing PMI for December compares with a decrease in the official PMI released by the National Bureau of Statistics (NBS) on Sunday.
Sub-indices for production and new orders came in at 54 and 53.4, respectively, down from 54.3 and 53.6 last month, but well above the boom-bust line of 50.
Despite its stable economic growth trend, China also faces some challenges, such as an increase in raw materials prices and rising corporate costs, said Chen of China Logistics Information Center.
The slowdown will continue into 2018 as the government moves forward with its supply-side structural reforms that include curbs on capacity in many industrial sectors.