A private survey cast light on stronger momentum in China's service sector, adding to evidence that the world's second-largest economy is on a steadier footing with its economic restructuring underway.
China's service sector grew at its fastest pace in four months braced by growing new orders, with the Caixin China General Services PMI (Purchasing Managers' Index) coming in at 52.4 in October, firming from 52 in September.
Business activity at service companies grew at a moderate pace, with total new order growth strengthening at the start of the fourth quarter, the survey said. A reading above 50 indicates expansion, while a reading below 50 represents contraction.
Service providers remained "generally positive" that business activity would increase over the next year. Furthermore, the level of confidence improved to its second-strongest in eight months, noted the survey conducted by financial information service provider Markit and sponsored by Caixin Media.
"Most indexes show mild improvements from their September readings, except the index for prices charged, which fell slightly compared to the previous month," said Zhong Zhengsheng, director of macroeconomic analysis at CEBM Group.
The survey reinforced the message of an official National Bureau of Statistics (NBS) report released Tuesday, which stated that non-manufacturing PMI grew at a faster pace in October, to 54 from 53.7 in September, marking the highest level this year.
On a similar note, private and official reports released earlier this week showed China's manufacturing sector posted its best performance in more than two years, with the NBS manufacturing PMI figures rising to 51.2 in October from 50.4 in September, the highest level since July 2014. Caixin's manufacturing PMI figures edged up to 51.2 from 50.1 over the same period.
However, firms are not without challenges. The latest survey revealed that firms are facing intensified inflationary pressure in tandem with flat service charges, suggesting waning corporate profitability.
"Prices charged for Chinese services were little-changed from the previous month, with some companies mentioning that increased competitive pressures had limited their pricing power," the survey said.
The economy might be able to sustain stable conditions throughout the fourth quarter, said Zhong, who also cautioned that the economy still lacked sufficient growth momentum and that supportive policies should not be relaxed.
China is transitioning to a more consumption and service-oriented economy, aiming for long-term gains and to foster new growth drivers, while policymakers cannot leave their feet on the gas pedal to sustain short-term economic growth to generate jobs and complete a lengthy list of reforms.
Experts believe that the pick-up in both official and private PMI data can provide policy makers with more room to check on financial and real estate risks, as well as to speed up structural reforms.
While keeping a relatively high growth pace, there should be a focus on economic restructuring, industrial upgrading and finding new growth drivers, said Zhang Liqun, a researcher at the Development Research Center of the State Council, China's cabinet.
China's economy grew 6.7 percent in the third quarter, holding steady from the first two quarters of the year. Some experts cautioned that China's economic rebalancing might be bumpier than expected, which would also have global repercussions.
A smooth Chinese economic transition will benefit the global economy over the long term, while a bumpy or incomplete transition may exacerbate global spillovers, the IMF said in a recent report.
China's economic restructuring has shown nascent progress, with the service industry accounting for 52.8 percent of China's GDP in the first three quarters, up 1.6 percentage points from the same period last year. Consumption was also playing a more conspicuous role in growth, accounting for 71 percent of GDP growth in the first nine months.
The IMF predict that China's economy will grow 6.6 percent in 2016.
