SINGAPORE Jan 5 BEIJING, Jan 5 (Reuters) -
Growth in China's services sector accelerated to a 17-month high
in December, a private survey showed, adding to views that the
world's second-largest is entering the new year with stronger
The strong pick-up mirrored improvements in manufacturing
surveys earlier this week, as market watchers debate whether
China's leaders will settle for a more modest growth target this
year in order to focus on more pressing issues such as an
explosive growth in debt.
The services PMI rose to 53.4 in December on a seasonally
adjusted basis from 53.1 in November, the Markit/Caixin services
purchasing managers' index (PMI) showed.
The December reading was the highest since July 2015, and
well above the 50-mark that demarcates expansion in activity
from contraction on a monthly basis.
New business for services firms also rose at the fastest
pace in 17 months, while business expectations were at a 4-month
high, though an employment sub-index remained stubbornly weak
and input prices rose the fastest in nearly two years.
Companies surveyed said that higher raw materials prices
were the biggest factor in higher prices, but strong competition
meant they weren't able to pass along higher costs to customers,
pointing to pressure on profit margins. An index of prices
charged held basically stable at 50.5 in December.
Caixin's composite PMI covering both the manufacturing and
services sectors matched a near 4-year high of 53.5 in December
from the previous month's 52.9, pointing to solid and more
balanced growth for the economy overall.
The upbeat findings broadly echo those of official and
private manufacturing surveys earlier this week that showed
improving conditions across broad sectors of the economy.
"The Chinese economy performed better in the fourth quarter
than in the previous three quarters," Zhengsheng Zhong, director
of macroeconomic analysis at CEBM Group, said in a note with the
report, adding that full-year growth was certain to meet the
government's target of 6.5-7 percent.
China is slowly making progress in shifting its economic
growth model away from a heavy reliance on exports and
investment, with consumption contributing 71 percent of growth
in the first nine months of 2016.
But auto sales are forecast to slow to single-digit growth
this year, home sales are on a downward trend and even China's
red-hot film industry grew only 3.7 percent last year.
Even as fears of an economic hard landing have greatly
diminished, other risks have become more pronounced.
The foreign trade environment looks increasingly uncertain
amid threats by U.S. President-elect Donald Trump to slap
tariffs on China's shipments into its largest export market, and
to brand Beijing a currency manipulator.
Credit is growing significantly faster than GDP and likely
hit a record high last year, while speculation in housing,
commodities and even government debt markets have raised the
risks of asset bubbles as overall leverage in the economy is
These risks have led to expectations that financial and
monetary conditions will be tighter this year, while pressure
from a weakening yuan and capital outflows will also keep the
focus on risk containment at the expense of growth.
"All known macroeconomic risks of China are still elevated.
Persistent loss of foreign reserves, rising debt-to-GDP ratio,
the risk of bubble burst in the property market, and the
liquidity crunch in the domestic bond market etc will continue
to work in unison to pressure economic growth lower," DBS said
in a note on Wednesday.
"It is no coincidence that the leadership is reportedly to
accept even slower growth this year."
(Reporting by Elias Glenn; Editing by Kim Coghill)