China's services activity growth recovered in July to the fastest pace in nine months after the slowdown in June, according to the HSBC Purchasing Managers' Index (PMI) released Friday.
The services PMI rose to 53.1 in July compared to 52.3 in June, diminishing the apprehensions about the soft global demand and the reduced real estate investment in the world's second largest economy.
"Behind the latest rise in service sector activity was a sustained increase in new order volumes. However, the rate of new business growth remained below-trend," Markit Economics said in a note.
The index continues to remain in the area of expansion since the reading is above 50. Also the rise in the reading would decrease fears of the likelihood of a sharp slowdown in the economy.
The report comes after HSBC PMI reported Wednesday that China's manufacturing activity rose in July compared to that in June. The reading of the PMI, a measure of the nationwide manufacturing activity, climbed to 49.3 in July compared to 48.2 in June.
"The modest gain in July's HSBC services and manufacturing PMIs implies that the slowdown of the Chinese economy is likely to have stabilized. That said, the pace of expansion suggested by the composite PMI remained only modest and is not sufficient to warrant a meaningful recovery. To secure growth and employment, Beijing still needs to step up policy easing and fast falling inflation allows them to do so," said Hongbin Qu, chief economist for China and co-head of Asian Economic Research at HSBC.
There have been fears of a hard landing after data showed earlier this month that China's economy slowed down to 7.6 percent in the second quarter, down from 8.1 percent in the first quarter. Beijing is targeting a growth rate of 7.5 percent this year. In 2011 and 2010, the economy grew by 9.2 percent and 10.4 percent respectively.
The continuing debt crisis in Europe and the tentative U.S. recovery have hurt the demand for exports, the key driver of China's economy. The International Monetary Fund has warned that escalation of the euro zone debt problems could slash China's 2012 GDP growth.