Expansion of China's services sector quickened to a three-month high in August, thanks to policy efforts that have managed to boost demand and employment, according to a major privately surveyed index on Wednesday.
The Caixin China General Services Purchasing Managers' Index rose to 52.1 in August, up from 51.6 for July and the highest since May, according to media group Caixin and information provider IHS Markit, which jointly released the index.
Analysts said the index, along with the renewed expansion momentum of China's manufacturing sector last month, signaled improvement in the economic situation, though policies to cushion downside pressure are still needed amid intensified trade friction between China and the United States.
A PMI reading above 50 indicates expansion while one below that figure shows contraction.
In August, Chinese services companies saw the quickest growth in new orders in four months, despite slower export order growth compared with July, indicating that growth stabilization policies have stimulated domestic demand, said Zhong Zhengsheng, director of macroeconomic analysis at CEBM Group, a subsidiary of Caixin.
Activity in the manufacturing sector also quickened in August, indicated by a five-month high Caixin/Markit manufacturing PMI of 50.4, up from 49.9 for July.
"China's economy showed clear signs of a recovery in August, especially in the employment sector. Countercyclical policies have gradually taken effect," Zhong said in a report.
The composite gauge of employment, covering the manufacturing and services sector, rebounded into expansionary territory in August-the first time it was above 50 since April, according to Caixin/Markit studies.
Despite improvements in the two Caixin/Markit PMI indexes, it may be too early to confirm a full-blown economic recovery, given mixed signals from recently released economic data and new US tariffs imposed on Chinese goods that took effect on Sunday, said Tang Yao, an associate professor of economics at Peking University's Guanghua School of Management.
In contrast with the rising Caixin/Markit PMI figures for services and manufacturing, the official PMI readings for the two sectors slid to 52.5 and 49.5 in August, respectively, the National Bureau of Statistics reported on Saturday.
For the rest of the year, China's manufacturing growth may remain stable but soften slightly amid a lukewarm global economy, and the country may rely more on the service sector to anchor growth as economic restructuring deepens, Tang said.
The services sector has "big growth potential", which could be released through improving the quality of supply in many services sectors, according to Tang.
"China's trade deficit in tourism is a case in point, in which domestic tourism services do not satisfy consumer demand. By taking measures such as cross-regional coordination to strengthen infrastructure networks, the strong domestic demand for travel may transform into higher output for the tourism sector," Tang said.
During the first seven months, China's deficit in services trade shrank by 9.8 percent year-on-year to stand at 887.1 billion yuan ($124 billion), indicating the stronger competitiveness of the country's services sector, according to the Ministry of Commerce on Wednesday.
Yang Weiyong, an associate professor of economics at the University of International Business and Economics in Beijing, said China should better leverage the services sector to fend off any employment pressure amid prolonged trade frictions.
"Some unskilled labor in manufacturing may become redundant as the sector slows down, and vocational training will help them be re-employed in the services sector. There is still a supply vacancy in this respect, and policy support can be stepped up to foster this training market," Yang said.