A Chinese one yuan coin and a 100 yuan banknote are seen in this picture illustration taken in Beijing
A Chinese one yuan coin and a 100 yuan banknote are seen in this picture illustration taken in Beijing Dec. 30, 2010. REUTERS

China's services activity growth declined in August to the slowest pace in a year after the recovery in July, according to the HSBC Purchasing Managers' Index (PMI) released Wednesday.

The services PMI dropped to 52 in August compared to 53.1 in July, indicating stagnation in the business activity. The index continues to remain in the area of expansion since the reading is above 50. But the fall in the reading would increase fears of the likelihood of a sharp slowdown in the economy.

"Behind the weaker rise in service sector activity was a slower increase in new order volumes, with the rate of expansion the weakest for a year," Markit Economics said in a note.

This report comes after last week it was reported that China's manufacturing activity declined in August from the previous month, increasing concerns over a slowdown in economic growth. Data released by the China Federation of Logistics & Purchasing Saturday showed that the Purchasing Managers' Index fell to 49.2 in August, which is the lowest in nine months. In July, it was 50.1.

"The HSBC services PMI moderated in August thanks to slower new order intakes, which recorded a one-year low. This, plus a nine-month low of new orders subindex (including domestic and external demand) in HSBC's manufacturing PMI, suggests that the main risk confronting China's economy is still to the downside. Beijing is expected to do more to counter balance the external shock," 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 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 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.