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Caixin China services PMI rises to 53.8, 11-month high

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A reading of China's services sector expanded at a quick pace in July, a positive signal that was in sharp contrast to recent weak manufacturing data.

The Caixin China services purchasing managers index (PMI) for July rose to 53.8, well above the 50-mark separating contraction from growth and up from June's 51.8; it was the highest reading since August 2014.

"Greater volumes of new business underpinned the latest expansion of business activity. Moreover, the rate of new order growth picked up to a solid pace that was the second-strongest in eight months," the data release said. "Anecdotal evidence suggested that stronger underlying client demand and new customer wins boosted new orders."

That marked a sharp contrast with Monday's release of the Caixin China manufacturing PMI for July, which surprised economists by coming in at 47.8, lower than the preliminary reading of 48.2. That data painted a darker picture than the official China PMI, released on Saturday, which avoided falling into contraction territory by coming in at 50 for July, down from June's 50.2 and below a Reuters poll forecast for 50.2.

Caixin's China PMI data tends to focus on smaller and medium-sized companies, filling a niche that isn't covered by the official data.

Read More Final Caixin China PMI for July surprises by dropping to two-year low

The divergent readings on the services and manufacturing sectors won't necessarily keep the mainland from hitting its "around 7 percent" target for gross domestic product (GDP) growth this year.

"China's economy is in transition mode to a services-driven economy," said Tommy Xie, an economist at OCBC, noting that services account for around 49.5 percent of GDP, compared with around 43.7 percent for industry.

"For the past few years, the services sector has already exceeded [industry] to become the key driver of China growth. The impact of slowing PMIs on GDP might not be as significant as before," he said. "The economy can still possibly see 7 percent growth," he added, noting that aside from high-frequency data such as the monthly PMIs, the country is still seeing solid job creation and wage growth.

China's broader economic data have been painting a mixed picture recently. Quarterly GDP data released last month beat forecasts by showing 7.0 percent growth, renewing long-standing concerns over data accuracy.

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Concerns about slowing economic growth on the mainland have spurred policy makers to action. In late June, the People's Bank of China (PBOC) cut interest rates and the reserve requirement ratio (RRR) for some lenders in a bigger-than-expected easing package. That marked the PBOC's fourth round of major action since November amid concerns that the government's annual GDP target of "around 7 percent" could be at risk. China last cut both interest rates and the RRR at the same time in December 2008, at the peak of the global financial crisis.

Despite the positive reading from the services sector, concerns on slowing growth may also be reflected there.

"Service sector firms in China continued to signal optimism towards the 12-month business outlook in July," the data release said, but it added, "That said, the degree of confidence remained historically weak, with an uncertain economic outlook cited as a key factor weighing on optimism."

—By CNBC.Com's Leslie Shaffer; Follow her on Twitter @LeslieShaffer1