Index spike points to year's 'good start'

China's services sector activity expanded strongly in January, the fastest pace in almost six years, according to a major private survey. Analysts said the survey result shows China's growth remained resilient at the start of this year.

The Caixin/Markit services Purchasing Managers' Index, released on Monday, was 54.7 in January, up from 53.9 in December. It was the highest reading since May 2012.

The reading is in line with the official services business index, which stood at 54.4 in January, 1 point higher than the previous month. The 50 mark separates growth from contraction.

The composite Caixin PMI, which combines manufacturing and services indexes, was 53.7 in January, up from 53 in December, the highest in seven years. Analysts said it is an indication of stable growth in the world's second-largest economy.

"Caixin PMI readings in January showed that the Chinese economy had a good start to 2018," Zhong Zhengsheng, director of macroeconomic analysis at CEBM Group, said.

The rising Caixin services PMI is mainly attributable to increasing new orders and employment, survey results showed.

New orders registered the fastest growth since May 2015 thanks to development of new projects, business expansion and tapping of new clients, according to survey respondents.

As orders rise, services firms had to employ more people in January. The jobs growth, although it remained moderate, was the highest in five months.

"Looking forward, we should watch for stability of demand in the manufacturing industry and the impact of growing costs on the profitability of service providers," said Zhong of CEBM Group.

Costs of the services firms had risen strongly, registering the highest growth since April 2012, mainly manifested by rising costs of raw materials, transportation, and salary.

Economists also said the rising services PMI in January had been caused by better corporate access to bank loans at the start of the year and solid demand before the long Chinese Lunar New Year holiday, which begins in a little over a week.

"Banks normally dole out more credit at the start of the year, as opposed to being restrained by the lending quota last year," Wendy Chen, a Shanghai-based economist at Nomura, told Reuters.

"IT-related services are a big driver behind the growth in services. We expect it to continue its momentum for the remainder of the year."