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China services slowdown signal road bump

Monday, December 05, 2011 - 02:18

Dec 5 - Slowing growth rates for China's service sector is the latest indication a quick cool-down of the world's number-two economy, signaling the need for more expansion-friendly policy from the once-hawkish authorities. Jon Gordon reports.

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China and growth - the two words are synonymous in the financial industry. But there's no doubt the world's number 2 economy is slowing down. Today's private survey of the services sector shows the pace of expansion is easing... while government data is even more dire - showing services and manufacturing both contracting for the first time since the tail end of the global financial crisis. Signs of a slowdown are also reflected in weaker GDP growth, falling property prices and a myriad of loan problems... Policy makers have reacted by cutting the amount of cash banks must keep on hand last Wednesday, sparking a bounce in Chinese equities. Standard Chartered's Stephen Green says what's next is obvious: (SOUNDBITE) (English) HEAD OF GREATER CHINA RESEARCH, STANDARD CHARTERED BANK, STEPHEN GREEN, SAYING: "More easing. I think it's likely we'll get least another couple of reserve requirement cuts after the first one in November 2011. I think also it's possible we'll get a bigger loan quota for next year." China watchers will be eagerly awaiting new loans figures -- among the key points in the last batch of data for 2011 due in the next 10 days. Inflation figures are also due out. And while they've started to finally show some moderation, the key thing to look at is real interest rates - what Chinese people earn on their bank deposits minus CPI. And that's deeply in negative territory. And BNP Paribas' Andrew Freris says we won't see serious easing until that changes. (SOUNDBITE) (English) SENIOR INVESTMENT STRATEGIST-ASIA, BNP PARIBAS WEALTH MANAGEMENT, ANDREW FRERIS, SAYING: "The fact that the purchasing manager's index, either the manufacturing or the service index, happens to come down and in the case of the services coming quite sharply down, should come as no surprise to anybody. That is what the Chinese really ultimately want. Right now in china real interest rates in china are still deeply negative... and whilst this is case, I really don't see any any significant moves on the part of the People's Bank of China to really loosen up" So while stock markets may be taking some comfort from the PBOC's preliminary action.. it may be worth tempering expectations for a rate cut any time soon. Jon Gordon for Reuters in Hong Kong

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China services slowdown signal road bump

Monday, December 05, 2011 - 02:18