* HSBC survey shows services sector expanding
* Official PMI showed non-manufacturing sector picked up
* Employment sub-index slips in July
BEIJING, Aug 5 Activity in China's services
sector defied the country's economic cooldown to expand modestly
in July, a private survey showed on Monday, as new business
orders recovered from a multi-year low in a rare sign of
But that was tempered by a fall in prices charged by
companies to a nine-month low, suggesting demand was still too
weak for them to raise prices, and as business expectations
hovered near their lowest since 2005.
The HSBC/Markit Purchasing Managers' Index (PMI) for the
services industry stood at 51.3 in July, unchanged from June and
just a whisker above a 20-month low of 51.1 struck in April.
A reading above 50 suggests business grew compared to a
month ago, while an outcome below 50 points to contraction.
China's economy is set to grow this year at its weakest pace
since 1990 as flagging foreign and domestic demand weighs on
exports and factory production. A slowdown in investment has
further dragged on growth.
"China's service sector has stabilised at a relatively low
level of growth," said Qu Hongbin, an economist at HSBC.
"But profit margins continue to be squeezed. Without a
sustained improvement in demand, services growth is likely to
remain lacklustre, putting downside pressures to employment
The sub-index for new orders rebounded to 52.3 from June's
reading, which was the lowest in over four years.
Financial markets have grown increasingly nervous about
China's economic health despite reassurances from Beijing that
the world's second-biggest economy is on track to meet its 7.5
percent growth target this year.
Crucially, services companies are the biggest employers in
China, at a time when the government is worried the downturn
could threaten social stability by driving up unemployment as it
tries to shift the economy away from a focus on manufacturing.
A similar, official survey released on Saturday showed the
non-manufacturing sector picked up in July as support measures
for small firms helped improve sentiment, though companies noted
inflation was picking up and pushing up costs.
The government's non-manufacturing purchasing managers'
index (PMI) rose to 54.1 last month from June's 53.9.
A pair of PMI surveys of Chinese manufacturers last week
showed factory production was slightly stronger than expected in
July among larger Chinese manufacturers. Smaller factories,
however, remained under pressure.
"I am more worried about manufacturers. I don't think the
worst is over," said Zhang Zhiwei, a Nomura economist in Hong
He said the services sector was holding up better than
manufacturing as it was not saddled with excess capacity and
debt and was supported by demand intrinsically less volatile.
"Policy will continue to be tight and growth will continue
to slow in the second half of the year," Zhang said.
The HSBC survey showed the employment sub-index slipped in
July, although it remained above a four-year trough touched in
HSBC said 6 percent of survey respondents increased their
payrolls, with a particular focus on hiring graduates. In
contrast, 2 percent of companies had shed jobs.
The services sector accounted for 46 percent of China's
economy in 2012, so a sharp slowdown in the industry would
exacerbate concerns about slackening economic growth.
Services firms created 35 percent of all jobs in China in
2011, overtaking manufacturers who accounted for 30 percent of