* China July HSBC services activity falls to near 9-year low
* New orders dip partly due to cooling property market
* Add to signs that pick up in economy remains fragile
* More steps may be needed to support recovery
By Xiaoyi Shao and Koh Gui Qing
BEIJING, Aug 5 Growth in China's services sector
slowed sharply in July to its lowest level in nearly nine years,
a private sector survey showed on Tuesday, indicating a recovery
in the broader economy is still fragile and may need further
Weakness was also seen in China's official services report
at the weekend, which showed activity slipped to a six-month low
as a cooling property sector increasingly drags on the world's
Both surveys contrasted with other data in recent weeks
which had raised hopes that the broader economy was regaining
momentum, thanks to a spate of government stimulus measures.
Services, which account for about 46 percent of gross
domestic product (GDP) and roughly half of all jobs in the
country, have been one of the few bright spots in China's
economy this year. Sudden signs of weakness there raise the
question of whether Beijing will need to do more to shore up
growth as well as consumer and business confidence.
"The weakness in the headline number likely reflects the
impact of the ongoing property slowdown in many cities as
property related activity such as agencies and residential
services see less business," said Qu Hongbin, HSBC's chief
economist in China.
"Today's data points to the need of continued policy support
to offset the drag from the property correction and consolidate
the economic recovery," Qu said.
The services purchasing managers' index (PMI), compiled by
HSBC/Markit, fell to 50 in July from June's 15-month high of
53.1, the lowest reading since November 2005 when the data
The survey suggested that the services sector stagnated last
month, as a reading above 50 indicates an expansion in activity
while one below the threshold points to a contraction.
In a sign that economic uncertainty has made companies more
reluctant to spend, a sub-index measuring new business growth
hit a 68-month low of 50.3 in July.
A similar survey by China's National Bureau of Statistics
found non-manufacturing activity slowed to 54.2 in July from 55
in June as property services contracted, and growth in new
orders were flat. The official PMI is weighted more towards
large state-owned firms.
The unexpected weakness in services comes after two separate
PMI surveys last week showed China's factory sector posted its
strongest growth in at least 1-1/2 years in July, adding to
hopes that the economy was building up steam again after a weak
start to the year.
But the rebound in manufacturing, likely owing to government
support and a recent resurgence in exports, could be masking
spreading weakness elsewhere in the economy.
Data last week showed bad loans are on the rise and one
official said the problem was spreading beyond the Yangtze River
Delta, which covers the financial capital of Shanghai and the
eastern provinces of Zhejiang and Jiangsu, and the Pearl River
Delta in Guangdong.
"The export-related industries are gaining strength in
recent months, while domestic demand remains weak, especially
for property-related industries," said Gao Yuan, an analyst at
Haitong Securities in Shanghai.
China's once-heated housing market has slowed this year as
sales and prices turned south in their biggest pull-back in two
years, driven in part by the cooling economy and by the national
government's nearly five-year-long campaign to keep price rises
But the extent and breadth of the downturn have surprised
analysts, with many worrying that it is now the biggest threat
to China's economy.
At least 23 regional governments, which earn a large chunk
of their revenues by selling state land, have openly or quietly
relaxed home purchase restrictions this year, according to data
from CRIC, a unit of real estate services firm E-House China
. State-controlled banks have also revved up lending to
The property slowdown may last for at least a year, though a
market collapse is seen as unlikely if local governments
continue to relax controls and banks keep credit ample,
according to a Reuters analysts poll last week.
While property-related consumption and investment are
slowing, household incomes are still climbing, said Nie Wen, an
economist at Hwabao Trust in Shanghai, noting that a record 7
million new jobs were created in the first half.
"The economy is picking up slightly, but policy has to stay
loose otherwise the momentum in the economy cannot be
Yet despite of the weakness in the services PMI, some
measures suggested companies remained confident.
Firms surveyed indicated they increased their staff numbers
moderately in the past month to meet planned company expansions,
HSBC/Markit said. Still, optimism over the 12-month business
outlook weakened from June.
Since April, China has steadily loosened policy by reducing
the amount of cash that some banks have to hold as reserves,
instructing regional governments to quicken their spending, and
hastening the construction of railways and public housing.
(Additional reporting by Kevin Yao, Editing by Kim Coghill)