China's non-manufacturing Purchasing Managers Index reached a 14-month high of 56.3 in October from 55.4 in September, suggesting a stable expansion of domestic demand.
The National Bureau of Statistics and the China Federation of Logistics and Purchasing released the figure on Sunday, showing that growth in the business service sector has contributed more to the overall economy.
A reading above 50 indicates that non-manufacturing production activities are accelerating, while below 50 means they are slowing.
"Continual expansion of the non-manufacturing sector will lead to steady employment growth, which is an important foundation to stabilizing the whole economy," said Cai Jin, vice-chairman of the CFLP.
Cai said the upward momentum of the sector is expected to remain in the coming months, and the development potential of the service industry should be further realized.
A subindex of the non-manufacturing PMI that indicates entrepreneurs' future expectations rose to 60.5 in October, compared with 60.1 in September, which means they have greater confidence in the industry over the next three months, according to statistics.
Analysts said the positive signals from the non-manufacturing industry will further help to transform China's economic growth pattern to a consumption-driven model.
In 2011, the service industry overtook manufacturing as the world's second-largest source of jobs.
In October, the manufacturing PMI climbed to an 18-month high to 51.4 from September's 51.1, higher than the market expected. The growth was mainly driven by stronger output, the NBS said on Friday.
Based on the stronger leading economic indicators, UBS chief Chinese economist Wang Tao expects that "the upcoming October data will show that economic activities have remained solid".
Consumer inflation is likely to pick up further while the growth of bank leading and overall social financing may slow after the rapid increase in September, she said.
Ma Xiaoping, an economist in China at HSBC Holdings PLC, said the existing government policies to stabilize growth, such as supporting small businesses and maintaining infrastructure construction investment, will continue to work in the coming months.
"The recent acceleration of capital inflow and expansion of fiscal expenditures will help keep a relatively sufficient liquidity," Ma said.
Besides, a rebound in employment and growth of incomes can boost consumption in the future, he added.
The Third Plenary Session of the 18th Communist Party of China Central Committee — to be held from Nov 9 to 12 — will offer an opportunity to lay out a comprehensive reform blueprint for the coming decade.
It is expected to stress structural reform in China for the medium and long term.