China's economy was picking up steam at the end of 2016

Photo by Kevin Frayer/Getty Images

China’s services sector was humming at the end of last year with activity levels growing at the fastest pace seen since July 2015.

The Caixin-Markit services purchasing managers index (PMI) rose to 53.4, up 0.3 points on the level reported in November.

In unison with a sharp improvement in the nation’s manufacturing sector over the same period, the separate composite PMI — combining both the manufacturing and services PMI figures from Markit — jumped to 53.5, marking the fastest improvement in activity levels seen in nearly four years.

A PMI measures changes in activity levels across a specific sector from one month to the next, and ranges from a score of 0 to 100. A reading above 50 indicates that activity levels were stronger than a month earlier.

At 53.5, there’s now little doubt that the Chinese economy was strengthening heading into 2017, a stark contrast from what was seen at the start of 2016.

Source: Markit

Markit said that output increased sharply in both the nation’s manufacturing and services sectors, growing at the fastest pace seen in over a year. In the case of the former, output grew at the fastest pace seen in six years.

Now, like then, the recovery was assisted by fiscal stimulus from Chinese policymakers, implemented at the start of the year to address a sharp, and worrying, slump in economic activity.

Suggesting that the improvement will be sustained in the months ahead, new orders across both sectors grew sharply.

“The pace of new business expansion accelerated to its strongest since July 2014 at manufacturing companies amid reports of improving client demand. At the same time, growth in new work at services companies quickened to a 17-month record,” Markit said.

“Subsequently, the rate of composite new order growth was the fastest since March 2013.”

As a lead indicator, it was perhaps unsurprising that services firms were optimistic about the outlook for business activity in the months ahead.

“Companies were generally upbeat towards their growth prospects in 2017,” said Markit.

“Moreover, the degree of optimism reached a four-month high, with a number of companies linking confidence to forecasts of improving market conditions and company expansions.”

As a result of the surge in activity seen across both sectors in December, Zhengsheng Zhong, director of macroeconomic analysis at CEBM Group, says it’s now a foregone conclusion that policymakers have achieved their 2016 GDP growth forecast of between 6.5% to 7%.

“The Chinese economy performed better in the fourth quarter than in the previous three quarters. It is out of the question the government’s full year growth target will be reached.”

That answer will be known soon enough.

China’s National Bureau of Statistics will release China’s Q4 GDP report, including full-year growth for 2016, on January 20.

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