China's services sector improves, Caixin survey shows

China's services sector grew at its fastest pace in more than three years in December, according to a survey released overnight.

The Caixin/Markit services purchasing managers' index rose to 53.9 last month from 51.9 in November, marking the best reading since August 2014 and beating expectations of 51.8. A PMI reading above 50 indicates growth.

The rise in the services PMI was driven by a surge in the new orders index.

Adding the services sector to the rest of the economy, the headline Caixin China composite PMI was lifted to 53.0 from 51.6 the month before.

The spike likely overstates the reality of the pick-up, said economists at Pantheon Macroeconomics, which offered an adjusted version showing only a modest uptick to 52.2 in December from 51.9 in November.

"Nevertheless, the PMI now is trending sideways rather than down as it was in the first half, averaging 52.0 in Q4, little changed from Q3."

But Pantheon said China's fourth quarter real GDP growth is likely to slow due to weak industrial production growth from the strong start of anti-pollution curbs.

"The services PMI should correct back down in January, with the sideways trend continuing."

Pantheon also noted an uptick in the input price index could signal the beginnings of a more serious second round of effects from previously strong PPI inflation, with the higher output price index in the fourth quarter implying some feed-through to CPI inflation.