Services PMI adds to signs of China slowdown

Growth loses steam as effect of stimulus fades but activity remains resilient

PUBLISHED : Monday, 06 January, 2014, 9:59am
UPDATED : Tuesday, 07 January, 2014, 3:41am

Growth in the mainland's services sector slowed sharply last month to its lowest point since August 2011, a private-sector survey showed yesterday, adding to signs of slowing momentum in the world's second-largest economy.

The HSBC/Markit services-sector purchasing managers' index dropped to 50.9 from 52.5 in November, with new business expansion the slowest in six months.

The PMI follows a similar survey by the National Bureau of Statistics on Friday, which also noted a slowdown in service-sector activity growth, to a four-month low of 54.6.

Both surveys follow two other PMIs last week that showed factory activity slowed last month, suggesting the moderation in the country's growth in the final quarter of the year was broad-based.

But all four measures remained above the 50-point level that separates expansion in activity from contraction.

The mainland economy has regained some momentum since mid-year after a protracted slowdown. While it was expected to lose steam as the effect of government support measures faded, activity remained resilient into the final quarter.

Beijing said it would accept slower expansion as it tried to reshape the economy towards more sustainable growth, based on consumer demand, after three decades of breakneck growth led by exports and credit.

Economic growth is likely to come in at 7.6 per cent for last year, the government has said, just above the official target of 7.5 per cent and slightly below the 7.7 per cent in 2012.

"We expect the steady expansion of manufacturing sectors to lend support to service-sector growth," said HSBC's China chief economist, Qu Hongbin.

"Moreover, the implementation of reforms such as lowering the entry barriers for private business in service sectors and expanded [value-added tax] reforms should help to revitalise the service sectors in the year ahead."

The HSBC services PMI's sub-index measuring new business orders dropped to a six-month low of 51.8 in December on subdued client demand.

However, labour market conditions improved for a fourth month, with the employment sub-index growing at the strongest pace since June, mainly due to company expansion.

In Hong Kong, an HSBC gauge of business conditions in the private-sector economy showed modest expansion in activity last month, although the growth rate eased from November's 10-month peak.

The PMI for December fell to 51.2 from 52.1 in November.

New orders received by private-sector companies grew but were weaker than in November.

New business from the mainland expanded for a second month, and the growth rate was the fastest since August 2011.

Output expanded for a fourth month. Although the growth rate eased to a modest pace, it was the second-fastest since January last year.

Employment contracted for the 10th consecutive month, and the rate of contraction was the fastest in five months.

"The pace of growth in Hong Kong may have slowed marginally in December, but output and new orders are still rising faster than their historical average rates," Qu said. "There was an overall contraction in employment, but the acceleration in new orders from China is encouraging and should limit any downside to overall output."