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The services industry or the non-manufacturing sector accounted for 46 per cent of China’s economy in 2012.
A PMI reading above 50 per cent indicates expansion, while a reading below 50 per cent indicates contraction.
The monthly indicator is released by the National Bureau of Statistics and the China Federation of Logistics and Purchasing.
China’s manufacturing PMI on Thursday showed China’s factory activity was slightly stronger than expected in July.
China’s central bank had earlier promised to make the environment for small businesses friendlier.
China has suspended the value-added tax (VAT) and turnover tax for small businesses with monthly sales of less than 20,000 yuan ($3,226) effective from 1 August.
The announcement was made after an executive meeting of the State Council presided over by Chinese Premier Li Keqiang.