Property market cool-down drives HSBC China services PMI to lowest level ever
Mainland services PMI from HSBC/Markit falls to near 9-year low last month, reflecting strains in key sector and keeping spotlight on stimulus
Growth in the mainland's services sector slowed sharply last month to its lowest level in nearly nine years, a private-sector survey showed yesterday, indicating a recovery in the broader economy is still fragile and may need further government support.
Weakness in new orders was also seen in an official services report at the weekend, which showed activity slipped to a six-month low. Both surveys contrast with other data in recent weeks that showed the economy was regaining momentum thanks to stimulus measures.
The weaker readings in services, which account for about 45 per cent of gross domestic product, raise the question of whether Beijing needs to do more to support growth, particularly in the rapidly cooling property sector.
The services purchasing managers index compiled by HSBC/Markit fell to 50 from a 15-month high of 53.1 in June. The latest reading is the lowest since November 2005, when data collection began. The survey indicated a stagnation of service activity last month, as a reading above 50 in PMI surveys indicates an expansion in activity, while one below the threshold points to a contraction.
In a sign that economic uncertainty has made companies more reluctant to spend, a sub-index measuring new business growth hit a 68-month low of 50.3 in July. Stock markets in Hong Kong and Shanghai turned negative after the survey was released, while most other Asian markets extended modest early losses.
The unexpected weakness in services comes after two separate PMI surveys last week showed China's factory sector posted its strongest growth in at least 18 months in July, adding to hopes that the economy was building up steam again after a weak start to the year.
"The weakness in the headline number likely reflects the impact of the ongoing property slowdown in many cities as property-related activity, such as agencies and residential services, see less business," said HSBC's chief China economist, Qu Hongbin.
A similar survey by the National Bureau of Statistics found non-manufacturing activity slowed to 54.2 in July from 55 in June as new orders rose at their weakest rate in at least a year. The official PMI is weighted more towards large, state-owned firms.
The extent and breadth of the property downturn have surprised analysts. At least 23 regional governments, which earn a large chunk of their revenues by selling state land, have openly or quietly relaxed home purchase restrictions this year, according to data from Cric, a unit of real estate services firm E-House China.
Yet despite the weakness in the services PMI, firms surveyed indicated they increased their staff numbers moderately in the past month to meet planned company expansions, HSBC/Markit said.