China's services expansion shows resilience
Despite robust activity in the key sector, analysts warn that the economy still faces risks to growth from a prolonged property market slowdown
The mainland's service sector activity showed resilience even as expansion in its vast factory sector slowed, in the latest sign that the government-engineered transition from a manufacturing-driven economy to one led by services is taking hold.
Economists welcomed the gradual rebalancing trend but cautioned that a prolonged property market downturn may hurt consumption and prove a drag on economic growth in the second half of the year.
Both the official mainland non-manufacturing purchasing managers index (PMI) and a private survey conducted by HSBC and Markit showed that activity in the services sector picked up in August.
The official index rebounded to 54.4 last month from 54.2 in July, which had been the lowest since the start of this year, the National Bureau of Statistics said yesterday.
The HSBC China Services PMI rose to 52.8 in August from 51.6 in the previous month in the strongest expansion of business activity in 17 months.
The robust activity in the services sector contrasts with the slowing expansion of the manufacturing industry. Data released on Monday showed HSBC China manufacturing PMI fell to 50.2 in August from 51.7 in July, while the official reading also eased, though both held above the threshold of 50, a border separating expansion and contraction.
HSBC's chief China economist Qu Hongbin said despite the rebound in the services PMI last month, sub-indices "suggested a mixed picture rather than a broad-based improvement".
"The economy still faces downside risks to growth in the second half of the year from the property sector slowdown. We think policymakers should use further easing measures to help support the recovery," said Qu.
New-orders indices in the official services PMI stayed below 50 for sectors including property, catering, and on-land transportation, while that for the construction sector slumped to 47.5 from 51.6 in July as demand waned.
Gross domestic product grew 7.4 per cent in the first half. Beijing is targeting a growth rate of "about 7.5 per cent" this year.
The government aims to boost the share of services in GDP - at 46.6 per cent in the first half - to more than 50 per cent by 2020.
Last year services accounted for 46.1 per cent of the GDP, exceeding the share of industrial sectors for the first time. However, it still lags behind the average 74 per cent ratio in developed nations and 53 per cent in middle-income countries.
The economic rebalancing "has already started, albeit at a very incremental pace," said UBS Securities economist Wang Tao.
Mainland authorities have been taking measures to stimulate services growth, including expanding pension coverage, bolstering development in tourism and insurance, and easing access for private investment in sectors such as health care and transportation.