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China Services PMI - Not as Good as It Looks?

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While growth in China's services sector touched a multi-month high in March, economists tell CNBC why this March reading does not look so attractive after all.

"The reading is positive, but the overall level is relatively low by historical standards - it means that the Chinese economy is not roaring back," said Dariusz Kowalczyk, senior economist, Asia ex-Japan at Credit Agricole.

China's official services Purchasing Manager's Index (PMI), which rose to a two-month high of 55.6 in March from 54.5 in February, was at 58 in the same month last year.

Another private sector reading, the HSBC non-manufacturing PMI climbed to 54.3, its highest level in six months. A reading above 50 indicates expanding activity and one below 50 signals contraction.

(Read More: China HSBC Flash PMI Up in March After Holiday Dip)

As China shifts from an export-led to consumption driven economy, the services sector is playing an increasingly important role in driving growth in the world's second largest economy.

Services accounted for 46 percent of gross domestic product (GDP) in 2012, higher than manufacturing which took a 42 percent share last year.

Zhiwei Zhang, chief China economist at Nomura, points to the marginal improvement in the key new orders sub index - which rose just 0.2 points to 52 last month - as a sign of "weak recovery" in the sector.

(Read More: China's Growth May Slow Sharply by 2030: Fed Study)

New orders for the catering, logistics and transportation industries, for example, slipped below the 50 point level, pointing to a slowdown in activity.

The services PMI was largely driven higher by the construction sector, with the sub index rising 4.5 points to 62.5 in March.

This industry has been boosted by the government's $150 billion-plus infrastructure spending package unveiled in September last year and recovery in the country's housing market. But this buoyancy could be curtailed going forward as housing curbs kick in, said one economist.

"The services sector rebound is led by the construction sector - but the rebound could peter out in the coming months as more harsh property curbs are rolled out, province by province...After this month we may see a weaker services PMI," said Li-gang Liu, chief China economist at ANZ.

(Read More: China Housing Curbs Kick In, So Why Are Stocks Up?)

Over the weekend Beijing and Shanghai vowed to enforce the property curbs announced in early March including prohibiting single residents in the capital city from buying a second home.

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