China's services sector, now the largest part of the economy, is chugging along nicely

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China’s services sector, now the largest component within the broader Chinese economy, grew at a slightly slower pace at the start of 2017.

The Caixin-Markit China services purchasing managers index (PMI) fell 0.3 points to 53.1 in January, pulling back from the 17-month high of 53.4 in December.

The PMI measures changes in activity levels for small and medium-sized services firms in China from one month to the next. A reading of 50 is deemed neutral, with anything above this figure indicating that activity levels have improved. The distance from 50 reflects the scale of the improvement reported.

At 53.1, that indicates that while activity levels continued to improve last month, they did so at a slower pace than in December.

Zhengsheng Zhong, director of macroeconomic analysis at Caixin Insight Group, said that new orders continued to grow rapidly, though at a marginally slower rate than in the previous month, while input prices and output prices increased at faster rates.

On that basis, activity levels are likely to remain firm in the months ahead. It also suggests that the acceleration in non-food inflation in China in recent months is likely to be sustained in early 2017.

Last week, the Chinese government released its separate non-manufacturing PMI report, which revealed that activity levels across the nation’s services sector improved at a faster rate in January compared to December.

However, the NBS PMI takes in responses from firms of all sizes from both the public and private sectors, differentiating it from the smaller Caixin-Markit PMI, which is predominately focused on activity levels for smaller services firms from the private sector.

This may explain the divergence between the two reported in January.

Regardless, both point to continued improvement in the sector, indicating that the strong momentum in the Chinese economy late last year will likely continue in early 2017.

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