China services sector
HSBC China Services PMI declines in February REUTERS

China's services sector has expanded at a slower pace in February, according to a closely-watched private survey, indicating a moderate recovery in the world's second-largest economy in the near future.

The services Purchasing Managers' Index (PMI) released by HSBC Holdings and Markit Economics revealed that the growth in the sector slowed down in the month, with the index reading falling to 52.1 from 54 in January.

A reading above 50 indicates expansion in the sector.

On 3 March, the official PMI by the government showed that non-manufacturing sector expanded at the slowest pace since September. The index fell to a five-month low of 54.5 in February from 56.2 in January.

The decline is primarily attributed to China's recent policies to reduce wasteful state spending, including banning officials from hosting extravagant meals.

"Service sector growth moderated on slower demand growth in February, likely reflecting the impact of Beijing's recent frugality campaign as well as the greater volatility of the readings around Chinese New Year period," Hongbin Qu, Chief Economist, China & Co-Head of Asian Economic Research at HSBC, said in a statement.

"However, we expect a continuous modest improvement of service sector growth in the coming months, thanks to the healthy labour market conditions and the ongoing recovery of manufacturing growth."

Despite a decline in the new business sub-index to a three-month low of 52.2, about one third of 400 firms surveyed by HSBC were optimistic on the business prospects. The optimism was backed by rising employment in the services sector.

Last week, both the official and HSBC/Markit manufacturing PMIs indicated that factory growth slowed down in February on lower domestic demand.

The slowdown in the manufacturing and services sectors points to the fact that the country's recovery following a 7.8 percent economic growth last year, the worst in 13 years, will be modest.

The government is targeting a 7.5 percent growth in 2013, the same as in 2012.