China services growth slows sharply

BEIJING: Growth in China's services sector slowed sharply in April to
its lowest point since August 2011, a private sector survey showed on
Monday - fresh evidence of rising risks to a revival in the world's No.2
economy.
The HSBC services Purchasing Managers' Index (PMI) fell
to 51.1 in April from 54.3 in March, with new order expansion the
slowest in 20 months and staffing levels in the service sector
decreasing for the first time since January 2009.
Two separate
PMIs last week had already shown that China's manufacturing sector
growth slowed [ID:nL3N0D5569], With the weakness spreading to services,
which make up almost half of gross domestic product, the risk to the
recovery may be increasing.
"The weak HSBC service PMI figure
provides further evidence of a slowdown not only in the factory sector
but also in the service sector," said Zhang Zhiwei, chief China
economist at Nomura Securities in Hong Kong.
"This confirms our
worries about insufficient growth momentum in the economy, which we
expect to slow to 7.5 percent in the second quarter."
The HSBC
services PMI follows a similar survey by China's National Bureau of
Statistics, which found non-manufacturing activity eased to 54.5 from
55.
Readings above 50 indicate activity in the sector is growing, while those below 50 indicate it is contracting.
The
HSBC survey showed that the sub-index measuring new business orders
dropped sharply to a 20-month low of 51.5 in April, with only 15 percent
of survey respondents reporting an increased volume of new orders that
month, HSBC said.
"This started to bite employment growth. All
these are likely to add some risk to China's growth in 2Q, as there's
still a bumpy road towards sustaining growth recovery," said HSBC's
China chief economist Qu Hongbin.
The employment sub-index
decreased to 49.6 in April, the first net reduction in staff numbers
since January 2009, although HSBC said job losses were marginal,
partially caused by firms down-sizing and employee resignations.
Employment
is a decisive factor shaping government thinking because it is crucial
for social stability. The services sector accounted for 46 percent of
China's gross domestic product in 2012, as big as the country's
better-known manufacturing industry.
China's economic growth
unexpectedly stumbled in the first quarter, slipping to 7.7 percent
versus 7.9 percent in the previous three month period, as factory output
and investment slowed.
The government has set a 2013 growth
target of 7.5 percent, a level Beijing deems sufficient for job creation
while providing some room to reform to the economy.
Any more weak data could spark a policy response.
"The
risk of slower growth is rising, the Chinese government will probably
take actions after April data come out," said Jianguang Shen, chief
China economist of Mizuho Securities Asia in Hong Kong.
"I see an
increasing possibility for China to cut interest rates, but not likely
any time in the near future, as housing inflation is a constraint."
However
a Reuters poll last month found that China's central bank is expected
to keep the benchmark one-year bank lending rate at 6 percent and the
one-year bank deposit rate at 3 percent through 2013, as well as holding
banks' reserve requirement ratios (RRR) steady. - Reuters