China services growth slows in December: HSBC PMI
China’s services sector saw its slowest rate of expansion in nearly a year and a half in December, a private sector survey showed on Friday, in another piece of evidence that a fourth-quarter economic growth revival will remain modest.
The HSBC services Purchasing Managers’ Index (PMI) for December softened to 51.7 in December from 52.1 in November. The December reading was the lowest since August last year.
A reading above 50 indicates growth is accelerating, while one below 50 indicates it is slowing.
The HSBC services PMI follows a complementary survey by the National Bureau of Statistics, which found non-manufacturing activity rose at its fastest pace in four months, to 56.1. The two surveys differ somewhat in methodology and scope, with the HSBC survey better reflecting the private sector and the NBS survey more focused on state-owned firms.
“Despite the moderation of December’s headline services PMI, the underlying strength of services sectors improved in terms of stronger new business flows and employment growth,” Hongbin Qu, HSBC’s chief economist for China, wrote in a note accompanying the results.
He expects China’s GDP growth to recover to about 8 per cent in the fourth quarter, after slowing to 7.4 per cent in the third.
Most indicators point to a fourth quarter recovery, but the growth momentum into next year is in question. The NBS manufacturing PMI in December matched November’s levels but disappointed market expectations that the final month of this year would be stronger.
“Investors should be wary of getting too optimistic in coming months,” wrote Ting Lu of Bank of America Merill Lynch earlier this week. He added that this year, asset prices were only bolstered by the broader economy in the second half of the year.
“In next year, we expect exactly the opposite. The macro environment could remain supportive of asset prices in 1H, but will likely turn less supportive or even negative in 2H as GDP/IP/earnings growth slows and inflation rises.”
Chinese service firms are generally optimistic, with one-third expecting activity to increase in the next year.
“Optimism was generally attributed to improving market conditions, which were also expected to boost the growth of new business in the coming year,” Markit Economics, which compiles the PMI survey for HSBC, wrote in an accompanying note.
A sub-index measuring new business orders rose moderately in December to 52.4, HSBC said, with only 13 per cent of survey respondents reporting a higher level of new business that month.
An employment sub-index rose to its highest reading since December 2010, helping raise a sub-index measuring input costs. The price that businesses are able to charge also rose, but less so than input costs.
China’s fast-growing services industry has so far weathered the global slowdown much better than the factory sector, with the PMI consistently signalling healthy expansion and hitting a 10-month high of 58.0 in March.
That is partly due to a maturing economy as well as a historic shift in the last decade leading a majority of Chinese to live and work in cities rather than the countryside.
The services sector generated 43 per cent of China’s GDP in 2010 and by last year provided nearly 36 per cent of new jobs, exceeding the agricultural sector for the first time.
It has taken up some of the slack from the property sector, which has struggled with investment and purchasing restrictions as well as a credit crunch.
The sector, formerly the bastion of smaller private businesses, is now important enough to have its own five-year plan, issued in September.