China services PMI jumps to 11-month high - in sharp contrast to recent manufacturing data

A reading of China's services sector expanded significantly in July, a positive sign that was in sharp contrast to recent soft manufacturing data.

The Caixin China services purchasing managers index (PMI) for July climbed to 53.8, well above the 50-mark separating contraction from growth and up from June's 51.8 - the highest since August 2014.

That marked a vivid contrast with Monday's release of the Caixin China manufacturing PMI for July, which surprised economists by coming in at 47.8, well below the preliminary reading of 48.2. Those numbers painted a dim picture than the official China PMI, released on Saturday, which avoided falling into contraction territory by coming in at 50 for July, down from June's 50.2 and below a Reuters poll estimate for 50.2.

Caixin's China PMI data tends to take into consideration smaller and medium-sized companies, filling the gap not covered by the official data.

But the different readings on the services and manufacturing sectors will not necessarily prevent the mainland from hitting its "around 7 percent" target for gross domestic product (GDP) growth in 2015, as the country is still seeing solid job creation and wage growth.

"China's economy is in transition mode to a services-driven economy," said Tommy Xie, an economist at OCBC, noting that services account for around 49.5 percent of GDP, compared with around 43.7 percent for industry.

"For the past few years, the services sector has already exceeded industry to become the key driver of China growth. The impact of slowing PMIs on GDP might not be as significant as before," he noted.

Recently, broader economic data from the country have been painting a mixed picture. Quarterly GDP data released last month surprised forecasts by showing 7.0 percent growth, renewing lingering concerns over data accuracy.

Worries about slowing economic growth on the mainland have driven officials to action.

In late June, the People's Bank of China (PBOC) slashed interest rates and the reserve requirement ratio (RRR) for some banks in a bigger-than-expected easing package. That marked the PBOC's fourth round of major action since November amid fears that the authorities' annual GDP target of "around 7 percent" could be endangered. The country last cut both interest rates and the RRR at the same time in December 2008, when the global financial crisis was at its peak.

Concerns on slowing growth may also be mirrored in the fresh reading:

"Service sector firms in China continued to signal optimism towards the 12-month business outlook in July," as it was pointed out in the data release which added that the degree of confidence is at the historically weak level with an uncertain economic outlook being a key factor pressuring the sentiment.