Growth in mainland services has slowed. Photo: Natalie Behring

Slower growth in China services as PMI falls in April

Expansion eases in April, raising prospect of lower gross domestic product targets next year

The mainland's service industries expanded at a slower pace last month, adding to the drag on growth in the world's second-biggest economy after manufacturing lost momentum.

The reading suggests that growth momentum will remain relatively soft in the second quarter, and that the economy has shifted to a weaker growth trajectory

The non-manufacturing Purchasing Managers' Index fell to 54.5 from 55.6 in March, the National Bureau of Statistics and China Federation of Logistics and Purchasing said yesterday in Beijing. Readings above 50 indicate expansion.

A deceleration in service industries may fuel concern that the country's economic slowdown will extend into a second quarter after two manufacturing indices declined. Risks that include surging credit, overcapacity and an overheating property market may limit the government's room to stimulate growth.

"The PMI adds to downside risks for China and the region," said Dariusz Kowalczyk, senior economist and strategist at Credit Agricole CIB in Hong Kong. "The reading suggests that growth momentum will remain relatively soft" in the second quarter, and that the economy "has shifted to a weaker growth trajectory", he said.

The report "adds to the case for policy stimulus, and we expect the government to orchestrate more investment", which would boost growth beginning in the third quarter, Kowalczyk said. Weaker momentum in the economy added to chances that the government would set a 2014 expansion goal of 7 per cent, down from this year's 7.5 per cent, he said.

Cai Jin, a vice-president at the Beijing-based federation, gave a more-upbeat view, saying that strength in construction and logistics pointed to "robust production activity in the future".

"Price pressures have eased, which will help improve quality and efficiency in economic development," Cai said.

The logistics federation's non-manufacturing index is based on responses from purchasing managers at 1,200 companies in 27 industry groups including catering, retailing, construction and transport. A new seasonally adjusted series began in March last year and the data was revised back to March 2011. HSBC's index will be released on Monday. The gauge rose to 54.3 in March, the highest reading since September.

Service industries are becoming a bigger part of the economy, supporting the government's efforts to shift the focus of growth away from investment and exports.

This article appeared in the South China Morning Post print edition as: Slower growth in mainland services