* HSBC services PMI hits 17-month high of 54.1 in Aug
* Aug official services PMI rises to 54.4 from July's 54.2
* Suggests services more resilient than manufacturing
* Analysts still expect more pro-growth policy steps
* Service indexes help China, Hong Kong shares
(Updates with HSBC PMI, analyst quotes)
By Kevin Yao
BEIJING, Sept 3 Activity in China's services
sector rebounded in August after a drop in July, two surveys
showed on Wednesday, offseting factory-sector weakness and
letting the government stick with its "targeted" policy stance
to keep growth on track.
The government is determined to achieve its 7.5 percent
economic growth target for 2014 to keep employment stable and
rein in financial risks while pushing long-term reforms to put
the world's second-largest economy on a more sustainable
The services purchasing managers' index (PMI) compiled by
HSBC/Markit jumped to 54.1 in August - the strongest in 17
months - from a nine-year low of 50.0 in July.
A reading above 50 in PMI surveys indicates an expansion in
activity while one below that threshold points to a contraction.
Also, the official non-manufacturing purchasing managers'
index (PMI), published by the National Bureau of Statistics,
rose to 54.4 from July's six-month low.
Chinese stocks reacted positively to the PMI readings, with
the Shanghai Composite Index up 0.9 percent at 0255 GMT
and the Hang Seng Index rising 1 percent.
Both PMIs painted a mixed picture: demand picked up but a
cooling property sector remained a drag, while employment -
closely watched by policymakers to ensure social stability - was
The employment sub-index of the official PMI indicated a
slight contraction in August while the sub-index of HSBC slipped
"The economic expansion is quite uneven, as exports
accelerate, investment slows, and the real estate correction
intensifies, but on balance, headline real GDP growth is
probably a bit faster to the third quarters," said Bill Adams,
senior international economist for PNC Financial Services Group
of the U.S.
"Growth is strong enough to prevent a rise in unemployment
and attending social unrest," he said. "But until the government
announces a credible workout strategy for China's rising mound
of non-performing loans, it seems early to predict that the
third quarter's stronger growth can be sustained."
Activity in China's vast factory sector cooled in August as
foreign and domestic demand slowed, two surveys showed on
Monday, spurring new calls for more policy easing to prevent the
economy from stumbling once more.
Recent data showed the economy is losing steam as a slowdown
in the property sector appears to be deepening, putting
pressures on the government to roll out fresh policy stimulus
measures to support growth.
"The economy still faces downside risks to growth in the
second half of the year from the property sector slowdown," Qu
Hongbin, chief China economist at HSBC, said on Wednesday. "We
think policymakers should use further easing measures to help
support the recovery."
Premier Li Keqiang said last week that the government will
maintain its "targeted" policy stance to keep economic growth on
track, focusing on investment projects in bottleneck areas,
including public hospitals, nursing homes and clean energy
China's annual economic growth picked up slightly to 7.5
percent in the second quarter - in line with the official target
for the year - from an 18-month low of 7.4 percent in the first
quarter - helped by a flurry of policy stimulus measures.
WEATHERING THE STORM
Such measures included accelerated construction of railway
and public housing projects, cuts in reserve requirements for
some banks and loosening of property controls by some local
governments to support the cooling housing market.
Hopes that the mild rebound would gain traction were dashed
last month when growth in retail sales and fixed asset
investment slowed, while money injected into the economy
unexpectedly tumbled to a near six-year low.
The services sector, which covers everything from e-commerce
firms, banks and retailers to fitness centres, has weathered the
global slowdown much better than the factory sector.
The services sector made up 46.1 percent of gross domestic
product in 2013, surpassing the secondary sector -
manufacturing and construction - for the first time.
Services overtook manufacturing as China's biggest employer
(Reporting by Kevin Yao; Editing by Richard Borsuk)