China's services sector has remained in expansionary territory for 23 consecutive months, highlighting the resilience and growth potential of the economy during the country's economic structural transformation.

The Caixin China General Services Purchasing Managers' Index, a private gauge of the country's services activity, came in at 51.5 in November, down from 52 in October but firmly above the 50-mark since January 2023, pointing to a gradual increase in services activity.

"China's services sector experienced some monthly fluctuations in November. Despite a slight decline in the index, it remained above the 50-point threshold, signaling continued expansion in the sector," said Zhou Maohua, a researcher at China Everbright Bank.

These gains are largely driven by the gradual effects of domestic macroeconomic policies, particularly the unprecedented incremental measures rolled out since September, which have significantly boosted market expectations, Zhou added.

Chang Haizhong, executive director of corporates at Fitch Bohua, said that business activity has remained in expansionary territory for 23 consecutive months, highlighting the resilience and growth potential of China's services sector during the country's economic structural transformation.

In fact, over the past decade, the contribution of the services sector to GDP has consistently exceeded 50 percent (except in 2020), even surpassing 60 percent, Chang said. "In the long term, as China's economic transformation continues and demographic changes unfold, the services sector's contribution to GDP is expected to keep increasing," he added.

Recent data released by the National Bureau of Statistics, which cover a larger number of enterprises compared to the Caixin index, show that the services PMI remained steady at 50.1 in November.

As the impact of the National Day holiday subsided, business activity indices for sectors linked to travel — such as retail, accommodation and dining — saw declines to varying degrees, said Ming Ming, chief economist at CITIC Securities.

"Looking ahead, the continued implementation of supportive macroeconomic policies is expected to spur a recovery in effective demand, driving a rebound in the vitality of the services sector," he added.

However, the overall momentum of expansion in the services sector remains subdued. Some enterprises are grappling with weak demand recovery, mounting input cost pressures, and intense industry competition, said Zhou.

Looking ahead, Zhou said the services sector is still expected to maintain its growth momentum. "Strengthened domestic policy implementation is set to accelerate the effects of both existing and new measures, effectively navigating the challenges of a complex domestic and global economic environment," he added.

"Policies already in place, such as domestic measures to stabilize the real estate market, equipment upgrades and exchange policies for consumer goods, along with new support for the manufacturing sector, not only help to boost the recovery of consumption and investment but are also expected to drive growth in the services sector," he said.

The confidence in services sector businesses continues to improve, with the business expectation index in November reaching a seven-month high within the expansion range, according to Caixin.

Zhou said that the confidence of services sector businesses is primarily driven by the steady recovery of the domestic economy, increased market demand for orders and the potential effects of both existing and new domestic policies yet to be unleashed.

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