PMI points to modest expansion

Recovery in economic activity mainly driven by improved domestic demand

Growth in the services sector in November notched up its fastest pace in the past five months, underpinning a modest expansion of the world's second-largest economy, according to a private survey released on Wednesday.

The Caixin/Markit services purchasing managers' index, reflecting expansion in the business activities of the services sector, rebounded by 3 percentage points to 53.8 in November.

With the steepest growth of the services sector since July and a stable manufacturing production for the second month in a row, the Caixin/Markit Composite PMI picked up to 51.9 in November from October's 28-month low of 50.5. The 50-mark separates growth from contraction. Both indexes were released by Caixin Media on Wednesday.

"The rebound in the composite index showed that economic downturn pressures notably eased in November," said Zhong Zhengsheng, director of macroeconomic analysis at CEBM Group.

Recovery in economic activities was mainly driven by improved domestic demand, Zhong added, citing that the strong rally in the sub-index of new orders and the fall in that of export orders.

Increased demand in the service sector shored up total demand, as services companies registered the steepest rise in total new orders since June in November, while new business across the manufacturing sector only picked up at a marginal pace.

Despite the pickup in demand, the growth pace in prices charged by services providers fell in November, while that for input costs remained solid and unchanged from October, which was not good for companies' profits, Zhong said.

"Rising labor costs, house rents and meat prices this year have weighed on many catering businesses," said Ha Nan, founder and CEO of Beijing Liushanmen Technology, which was set up in 2015 and focuses on providing an innovative type of catering supply chain service.

But Ha said the trend of rising labor costs has prompted mid and small-sized chain restaurants to contain costs by cooperating with his company, which centralizes and industrializes the production of semi-finished dishes for the restaurants.

Dong Dengxin, an economics professor at Wuhan University of Science and Technology, said the services sector is where new business models concentrate, underpinning the economy's transition to innovation-based growth.

Official data showed the services sector accounted for 58.8 percent of China's GDP growth in 2017. Tang Yao, an associate professor at Guanghua School of Management at Peking University, expected the number to further increase. "With this increase, the economy's reliance on external demand will continue to drop," Tang said.

The official PMI of the services sector also recorded solid expansion at 52.4 in November, 0.3 percentage point higher than the previous month.

Ouyang Shijia contributed to the story.