China's service sector continued to expand in December, posting its strongest rate in 17 months, according to a private survey released on Jan 5.

The Caixin General Services Purchasing Managers' Index edged up to 53.4 from 53.1 in November, according to the survey conducted by financial information service provider Markit, sponsored by Caixin Media.

The previous high was 53.8 in July 2015. A reading above 50 indicates expansion, while below 50 represents contraction.

Demand in the sector picked up as new orders at service companies rose in December at the fastest pace in 17 months.

Rising raw-materials costs for service companies caused expenses to soar at their fastest rate in nearly two years, but service providers only slightly raised their prices in December due to market competition.

Optimism about growth in 2017 reached a four-month high, with surveyed companies generally showing more confidence due to improving market conditions and company expansions.

The Caixin China Manufacturing PMI, which was released on Jan 3, hit a 47-month high of 51.9 in December.

The strong performance in the two sectors meant the Caixin Composite Output Index, which reflects performance in both sectors, hit a 45-month high of 53.5 in December from November's 52.9.

Zhong Zhengsheng, director of macroeconomic analysis at CEBM Group, an investment research firm, says the figures show continued recovery in China's economy.

"The Chinese economy performed better in the fourth quarter than in the previous three quarters. There is no question that the government full year growth target will be reached," Zhong says.

China's GDP grew at 6.7 percent in the first three quarters of 2016, the government target being between 6.5 and 7 percent for the year.

National Bureau of Statistics data showed that China's manufacturing and nonmanufacturing PMI posted the second-highest monthly reading of 2016 in December, adding to signs of economic stabilization.