Staff members sort packages at a logistics center in Xi'an, capital of northwest China's Shaanxi Province, Jan. 13, 2022. [Photo/Xinhua]

Activity in China's services sector improved marginally in December with business confidence hitting a 17-month high on expectations of a strong recovery from the COVID-19 pandemic, a private survey showed on Thursday.

The Caixin China General Services Purchasing Managers' Index rose to 48 in December, up from a six-month low of 46.7 in November, media group Caixin said.

For the fourth consecutive month, however, the index stayed below the 50-point mark that separates growth from contraction. The December reading indicated a further fall in services activity across China as the pandemic continued to disrupt operations and dampen demand, Caixin said in a report.

However, service providers voiced strong business confidence for this year. Their optimism shot up the highest level since July 2021, with most surveyed service providers expressing confidence in a pickup in business activity this year. And companies that foresee higher output expected that the pandemic will likely ease and that operations and demand will recover in the future.

"COVID-19 outbreaks weighed on services activity across China," said Wang Zhe, senior economist at Caixin Insight Group.

According to Wang, both supply and demand shrank in the sector due to COVID outbreaks, with the sub-indexes for both business activity and total new orders remaining in the contraction territory for the fourth straight month in December.

Nonetheless, Wang said some service companies reported that their business improved in December over the previous month.

"Optimism improved significantly. Service providers expressed strong confidence in an economic recovery following the easing of COVID containment measures," Wang said.

Owing to the marginal improvement in the services sector, Caixin's composite PMI, which includes both manufacturing and services activity, improved to 48.3 in December from 47 in the previous month, the report said.

Even though data from the National Bureau of Statistics offer the latest official snapshot of the multiple pressures facing the economy, they indicated improved market confidence and expectations.

While December's official manufacturing index fell to 47 in December from 48 in November, most businesses surveyed still voiced confidence in a rebound in the market as COVID eases gradually.

Lu Ting, chief China economist at Nomura, said there are positives in some indicators following the optimization of COVID containment measures last month.

"The first wave of massive COVID infections appears to have peaked in some large cities and regions, with visible recoveries in mobility," he said.

A recent Nomura report said domestic tourism trips and revenues were up 0.4 percent and 4 percent year-on-year during the three-day New Year's holiday, respectively, improving from contractions of 18.2 percent and 26.2 percent during the National Day holiday in early October.

Owing to the optimized COVID control measures as well as the recovery in both domestic and inbound travel, Melody Chan, an equity analyst at Jefferies Hong Kong Ltd, also expressed strengthened confidence in the development of the hotel industry this year.

"We are positive on the outlook of the hotel sector," Chan said in a new report. "Hotel names are expected to ride on the recovery trend as well as the increasing hotel chain penetration rate."

While the economy is expected to recover gradually this year, experts also called for stepped-up efforts to stabilize GDP growth and deal with headwinds and pressures from a gloomy global outlook and weakening demand both at home and abroad.

Wang from Caixin Insight Group said he expects COVID infections to rise in China in the short term, which could disrupt production and life order. "How to effectively coordinate COVID controls with economic and social development has once again become the top priority."

Wang said policymakers have made it clear that priority must be given to the recovery and expansion of domestic consumption, calling for more efforts to stabilize the job market and effectively increase the disposable income of residents.

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