China April HSBC services PMI rises to 6-month high

BEIJING Thu May 3, 2012 10:53pm EDT

Employees make circuit boards at an electronic component factory in Hefei, Anhui province May 2, 2012. REUTERS/Stringer

Employees make circuit boards at an electronic component factory in Hefei, Anhui province May 2, 2012.

Credit: Reuters/Stringer

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BEIJING (Reuters) - China's services sector enjoyed its busiest month in half a year in April, with business expectations at their highest level in 12 months, a private sector survey of purchasing managers showed on Friday.

The seasonally adjusted HSBC China Services Purchasing Managers Index (PMI) rose to 54.1 in April from 53.3 in March, its strongest reading since October 2011, and followed an uptick in HSBC's manufacturing PMI released earlier this week.

The rise in the HSBC services PMI was in contrast to a retreat in China's official services PMI - albeit from a higher level after revision to its methodology in March - which was weighed down mainly by a continuing downturn in the real estate sector.

Markit Economics, which compiles the HSBC-sponsored survey, detected a broad-based rise in key service sector indicators.

"April data signaled a further rise in new orders placed at Chinese service providers. Although below the long-run trend for the survey, the rate of new order growth was solid, and the sharpest in 10 months," Markit said in a statement of survey findings.

"Companies commented on better demand conditions, new product launches and the success of promotional campaigns."

Staff numbers in the services sector rose for a 39th consecutive month. April's rate of job creation was the sharpest since November 2011 and survey respondents typically attributed hiring to a rise in new business.

The robust showing for the services sector signals both a further incremental reorientation of the economy away from its reliance on investment-led factory output and that domestic demand may be stabilizing after a period of weakness.

Investors had voiced concerns that China's domestic economy was struggling to compensate for lackluster export orders for goods produced by the country's vast factory sector, with demand in the United States and the European Union still struggling to recover to levels seen prior to the 2008-09 global financial crisis.

China's annual rate of economic growth eased to 8.1 percent in the first quarter of 2012, its fifth successive quarter of easing, to its slowest in nearly three years.

SOFT BOTTOM

While economists broadly believe the downswing is likely to have bottomed in the first quarter, some see a risk of soft conditions extending into Q2. That leaves the economy on course for its slowest year of growth in a decade. A Reuters poll forecasts 2012 expansion of 8.4 percent.

Earlier in the week, both the official and the HSBC manufacturing PMI indexes had signaled that smaller enterprises were struggling to make headway.

Small and medium sized firms in China's private sector often complain of difficulty in raising finance and working capital from the country's state-directed banks which prefer to lend to big, state-owned enterprises.

Beijing has taken steps to ease monetary and fiscal conditions since the autumn, when Premier Wen Jiabao announced a policy of "fine-tuning" to support growth.

Reserve ratio requirements (RRR) - the proportion of deposits banks must keep as reserves rather than lending out - have been cut by 100 basis points from a record high of 21.5 percent in two moves, the last time in February, while a number of changes have been made to cut taxes, licensing and red tape costs for smaller firms.

Increased factory output nonetheless pushed the official manufacturing PMI to a 13-month high of 53.1, while the HSBC index ticked up but remained below 50 for the sixth month running.

A PMI reading below 50 indicates contracting activity while a reading above 50 shows expansion.

The improvement in new business "plus the modest improvement within the manufacturing sector confirms our view that the Chinese economy is likely to bottom out in 2Q," wrote HSCB's China chief economist Hongbin Qu.

"As inflation pressures remain contained, we expect further monetary easing to boost growth in the coming months."

(Reporting By Lucy Hornby; Editing by Nick Edwards)

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