China Services Growth Adds to Economic Revival Hopes

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Growth in China's increasingly important services sector accelerated in December at its fastest pace in four months, adding to signs of a modest year-end revival in the world's second-largest economy.

China's official purchasing managers' index (PMI) for the non-manufacturing sector rose to 56.1 in December from 55.6 in November, the National Bureau of Statistics (NBS) said on Thursday.

Two PMIs on the manufacturing sector earlier this week also suggested China's economic growth was picking up late in 2012, although signs persist it depends primarily on state-led investment.

Data so far suggests only a muted revival in economic growth, rather than a return to the double-digit pace seen in China over the past three decades, Hong Kong-based economist Dariusz Kowalczyk said.

(Read More: World's No. 2 Economy Is Setting Itself Up for a Solid 2013)

"Absolute levels of both December manufacturing and non-manufacturing PMIs remain relatively low by historical standards and consistent with only modest rebound in economic activity," Kowalczyk, Credit Agricole's senior economist for Asia except Japan, said.

He said economic growth picked up in the fourth quarter of 2012 after sliding for seven straight quarters, but in sharp contrast to China's previous, more pronounced bull runs, it could fade after the first quarter of 2013.

The greatest driver in the pick up in the non-manufacturing sector in December was a jump in construction services to 61.9 from 61.3 in November. Industries including transport slumped, the NBS said in an accompanying statement.

A reading above 50 indicates growth is accelerating, while one below 50 indicates it is slowing.

The strength in construction services is consistent with other indicators, including rising land prices, that point to a revival in China's property markets, which support about 40 other industries. Signs of a pick up come despite central government protestations that it will not relax credit and purchasing curbs that have stifled the sector in the past two years.

The transport slowdown is also consistent with weak demand for China's exports in the face of euro area and Japan recessions and an uncertain fiscal outlook in the United States.

Services Grow in Importance

The official manufacturing PMI survey in December matched November's seven-month high of 50.6, the NBS said on Tuesday, while a complementary survey with a greater focus on the private sector reached 51.5, its highest since May 2011. [ID:nL4N0A50PQ]

China's fast-growing services industry has so far weathered the global slowdown much better than the factory sector, with the PMI consistently signalling healthy expansion and hitting a 10-month high of 58.0 in March.

That's partly due to a maturing economy as well as a historic shift in the last decade leading a majority of Chinese to live and work in cities rather than the countryside.

China's services sector generated 43 percent of China's GDP in 2010 and by 2011 provided nearly 36 percent of new jobs, exceeding the agricultural sector for the first time.

Beijing has acknowledged that greater consumer activity is needed to reduce the economy's reliance on the exports sector and investment-led growth.

"Expanding domestic demand will be a major stimulus for China's economic growth, and the greatest potential will come from the service sector," Xia Nong, deputy director-general of the Department of Industry under the National Development and Reform Commission, said on Friday, according to the China Daily.

Xia pledged to open the services sector to more foreign competition as well as encouraging Chinese service firms to go overseas.

Foreign investment into the service sector of $47.57 billion in the first 11 months of 2012 surpassed that directed to the manufacturing industry, which slumped by 7.1 percent, the China Daily said over the weekend, citing Ministry of Commerce data.

The growing services sector has taken up some of the slack from the property sector, which has struggled with investment and purchasing restrictions as well as a credit crunch.

Overseas company investment into China's urban transportation surged 24-fold in the first 11 months from a year ago, followed by a 12-fold rise in telecommunications and other information services, and a sevenfold increase in pipeline transportation industries, at sevenfold, the China Daily said, again citing Ministry of Commerce figures.

The sector, formerly the bastion of smaller private businesses, is now important enough to have its own five-year plan, issued in September.