China economy

China service sector slows, suggesting economy losing steam

PUBLISHED : Thursday, 04 May, 2017, 12:57pm
UPDATED : Thursday, 04 May, 2017, 9:39pm

An unofficial gauge of China’s service sector hit an 11-month low in April, underscoring the risks facing what has proved the most vigorous part of the world’s second-largest economy.

The Caixin service sector purchasing managers index fell to 51.5, compared with a reading of 52.2 in March .

Readings above 50 signal an expansion in activity in the sector, but a decline in the numbers for the fourth consecutive month, coupled with a weakening manufacturing sector troubled by overcapacity, suggests the economy is losing steam.

Zhong Zhengsheng, director of macroeconomic analysis at the CEBM Group said: “Growth in both manufacturing and services decelerated in April, reflecting a clear slowdown in the expansion of the Chinese economy.”

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The Caixin China Composite Output Index, measuring both the manufacturing and service sectors, dropped for the second month in a row to 51.2 in April, down 0.9 points from March.

“A turning point in growth appeared to have emerged at the beginning of the second quarter.” Zhong said. “Investors should be cautious about downward risks in the economy.”

China’s government complied economic indicators have shown a similar trend.

The official manufacturing purchasing managers index compiled by the National Bureau of Statistics fell from 51.8 in March to 51.2 in April. The decline was blamed on factors including softer new orders and weaker production momentum. Meanwhile, the official non-manufacturing PMI moderated as well last month.

April’s full economic data, which will be released later this month, is expected to show slightly softer growth on factors such as weaker industrial production, slower property sales and cooler export growth, UBS Securities analysts led by Wang Tao said in a research note.

“Regulatory tightening is likely to continue in the coming quarters until China’s growth momentum weakens much more or earlier than the government’s expectation,” Wang said.

China has seen a recent wave of financial regulations which have led to tightened liquidity and lending at banks.

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China’s leaders have emphasized the importance of ensuring that smaller and medium-sized companies, many in the service sector, still have access to finance, but many are struggling to survive or expand.

Expansion of new orders in the service sector weakened in April compared with the historical series average, according to the Caixin indices.

Service companies continued to add to their payrolls at the start of the second quarter. However, the rate of employment growth eased to the weakest so far this year, according to Caixin.

Song Yu, chief China economist at Goldman Sachs Gao Hua, said: “The fall in April was significant. Weaker trade growth may have contributed and the tightened policy stance may also have weighed on activity growth.”