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China economy news: Caixin services PMI above 50 in August

Activity in China's services sector improved in August as new orders picked up, a private survey revealed on Monday.

The Caixin/Markit services purchasing managers' index (PMI) rose to 52.1, up from 51.7 in July but still below an 11-month peak of 52.7 in June.

Aug. 29, 2016: A clothing store in Hangzhou, China. The leaders of 20 of the worlds major economies are in Hangzhou to talk about issues ranging from the global economy to the threat of terrorism.
Qilai Shen | Bloomberg | Getty Images
Aug. 29, 2016: A clothing store in Hangzhou, China. The leaders of 20 of the worlds major economies are in Hangzhou to talk about issues ranging from the global economy to the threat of terrorism.

Monday's figure was also below than the government's gauge. Last week, the official non-manufacturing PMI for August came in at 53.5.

The 50 mark demarcates expansion from contraction on a monthly basis.

"A further increase in total business activity was supported by moderate expansions of activity and output across the services and manufacturing sectors in August," Caixin said in an accompanying statement on Monday.

Moreover, business sentiment shot to a six-month high amid expectations for improving market conditions and new business developments, Caixin noted.

Services covers a range of areas including real estate, restaurants, e-commerce firms and retailers. It accounts for half of China's gross domestic product (GDP) and is crucial to the country's transformation into a consumption-led economy away from a historic reliance on the manufacturing sector.

For August, the government's and Caixin's gauge for manufacturing and services were all above the 50-level, raising hopes that the economy had bottomed. But that's not the case, economists cautioned.

"[Recent] data belies the fact that the business climate is weak. Private sector investment growth is in very low single digits," explained Jeremy Stevens, Standard Bank economist, in a Friday note, adding that companies are choosing to sit on cash instead of increasing capital expenditure.

While the world's number two economy is widely expected to hit its growth target of 6.5 percent this year, Stevens said the chances of any major fiscal or monetary impulse was low.

"Overall, the economy continued to expand in August at a pace similar to the growth rate for July, but conditions in manufacturing and service sectors diverged again. Downward pressure on China's economy remains and supportive policies must continue," said Zhengsheng Zhong, director of macroeconomic analysis at research firm CEBM Group.

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