UPDATE 2-China services' slow uptick highlights mildness of recovery

Sun Feb 3, 2013 12:01am EST

Related Topics

* Marginal rise indicates recovery still modest
    * Input costs up, showing inflation pressures
    * Outlook index dips, though shows optimism


    By Jonathan Standing
    BEIJING, Feb 3 (Reuters) - Growth in China's increasingly
important services sector rose for the fourth straight month in
January, though the slim increase added to evidence that the
recovery in the world's second-largest economy remains a modest
one.     
    China's official purchasing managers' index (PMI) for the
non-manufacturing sector rose to 56.2 in January from 56.1 in
December, the National Bureau of Statistics (NBS) said on
Sunday.
    The figure follows the bureau's PMI for the manufacturing
sector on Friday, which eased to 50.4 in January, missing market
expectations. A reading above 50 indicates growth is
accelerating, while one below 50 indicates it is
slowing. 
    "This marginal rise of non-manufacturing PMI again casts
doubt on the strength and sustainability of the recovery," said
Zhang Zhiwei, chief China economist at Nomura in Hong Kong.
    He noted that new orders declined, pointing to weaker
demand, while a rise in input service prices suggested
inflationary pressure. 
    "We believe the government cannot further loosen policies
given inflationary pressure, as growth may weaken beyond Q1 as
policy easing runs out of steam," Zhang said.
    The NBS said in a statement that the retail, air cargo and
shipping sectors all reported levels of activity above 60 in
January, though the construction sector, one of the big drivers
of growth in December, ticked down slightly to 61.6 from 61.9.
    The new orders index fell to 53.7 from the previous month's
54.3, showing a slowdown in demand even though the overall
figure remained well above the 50 mark separating growth from
contraction.
    The intermediate input price index jumped to 58.2 from 53.8
last month, indicating rising costs for enterprises, with a big
rise in costs the construction sector.
 
    
    MODEST RECOVERY      
    The marginal rise in the services PMI is consistent with the
view of many economists that recent data signals a modest
recovery for China and that steady policy support may well be
needed to keep it on track.
    A Reuters poll last month showed that China's economic
growth is likely to edge up to 8.1 percent in 2013 from 7.8
percent last year, which had been the economy's slowest growth
since 1999. 
    But the recovery could fizzle in 2014 as a pick-up in
inflation forces the central bank to revert to modest policy
tightening, the poll found.     
    The services sector generated 44 percent of China's GDP in
2011, up from 35 percent in 2000, and Beijing has acknowledged
that greater consumer activity is needed to reduce the economy's
reliance on exports and investment-led growth. 
    The services industry has so far weathered the global
slowdown much better than the factory sector, with the PMI
consistently signalling healthy expansion and hitting a 10-month
high of 58.0 in March.
    That is partly due to a maturing economy as well as a
historic shift in the last decade leading a majority of Chinese
to live and work in cities rather than the countryside.
    The January index of expected activity also fell from
December, but remained above 60, indicating that service sector
enterprises continued to be optimistic, the bureau said.
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