China economy

China services sector growth slows, PMI shows

PUBLISHED : Friday, 03 January, 2014, 9:17am
UPDATED : Friday, 03 January, 2014, 12:01pm

Growth in China’s services sector fell to a four-month low last month as business expectations dropped, a government survey showed, adding to evidence that the world’s second-largest economy lost steam into the close of the year.

The official purchasing managers index (PMI) for the non-manufacturing sector dropped to 54.6 in December from November’s 56, the National Bureau of Statistics said on Friday.

While the services PMI held above the 50 level that indicates expansion, slackening growth mirrors a fourth-quarter cooldown in factory activity and the broader economy as credit supply moderated and firms rebuilt inventories more slowly.

Lu Ting, an economist at Bank of America Merrill Lynch in Hong Kong, said another factor was the fading effect of China’s “mini” economic stimulus rolled out in mid-2013 to prop up slowing activity.

“There was pent-up demand in the third quarter, and we don’t expect it to [have been] sustained in the fourth quarter,” he said.

Lu said he expected quarterly growth to ease to 2 per cent in the December quarter from 2.2 per cent in the previous three months.

The services PMI follows two manufacturing PMIs out this week that showed growth in China’s factories slowing in December as export orders weakened.

Friday’s survey showed a sub-index for business expectations sagged to 58.7 last month from November’s 61.3, dragged down by the property and water transportation sectors, where firms expected activity to contract.

New orders held steady at 51, though the poll showed price pressures were building. A sub-index for intermediate prices climbed to 56.9 in December from November’s 54.8, while prices charged rose to 52 from 49.5.

Rising prices are in line with a widely held view among economists that inflation will grind higher in coming years, as a depleting supply of low-cost labour pushes up wage and production costs.

A Reuters poll in October found economic growth was expected to be 7.6 per cent last year, a shade higher than the government’s 7.5 per cent target but still the weakest rate in 14 years.

A separate PMI survey of the services industry by Markit Economics and HSBC will be released on Monday. That survey covers more smaller, private firms than the official PMI.