Growth in China services activity slows in Feb - Caixin PMI

BEIJING, (Reuters) - Growth in China’s services activity slowed in February, a private survey showed on Thursday, adding to risks for policymakers in Beijing who are counting on robust growth in the sector to offset a planned overhaul of bloated state companies.

A building under construction is seen amidst smog on a polluted day in Shenyang, Liaoning province November 21, 2014. REUTERS/Jacky Chen

The Caixin/Markit Purchasing Managers’ Index (PMI) fell to 51.2 in February from a six-month high of 52.4 in January.

A level above 50-point neutral mark signifies an expansion on a monthly basis, while one below that points to a contraction.

While February’s reading still pointed to expansion for the 19th straight month, a Caixin statement noted that growth was only modest and much weaker than the long-term average.

The results of the private survey suggest that a prolonged slowdown in the world’s second-largest economy and protracted weakness in manufacturing is starting to drag on its non-manufacturing sector, which has been one of the few bright spots in the economy.

The government has been keen to promote higher consumption to replace flagging “old growth” drivers such as heavy industry.

But a composite Caixin output index covering both manufacturing and services fell below the 50-point level in February, suggesting weakness in the manufacturing sector was overcoming the contribution from the services sector.

He Fan, chief economist at Caixin Insight Group, said further government measures were need to boosted the services sector and improve balance in the economy.

“While implementing measures to stabilise economic growth, the government needs to push forward reform on the supply side in the services sector to release its potential,” He said.

Services firms continued to create new jobs last month but at a slower pace, another worry for Beijing which is hoping the sector can absorb some of the millions of manufacturing workers who are expected to be laid off in coming years as it tries to reduce massive overcapacity in industries such as steel.

A sub-index measuring new business fell at its fastest pace in four months in February to 51.7 from 52.9 in January.

China said on Monday it expects to lay off 1.8 million workers in the coal and steel industries, or about 15 percent of the workforce, as part of efforts to reduce a capacity glut, but no timeframe was given.

Reuters reported this week that China aims to lay off 5-6 million state workers in two to three years to curb industrial overcapacity and pollution.

The Caixin services PMI focuses on smaller, private firms, but an official survey earlier this week also pointed to slowing growth for larger, state companies. The official reading fell to its lowest since late 2008.

Weaker factory and services surveys this week are likely to reinforce views that Beijing will have to step up stimulus measures this year to avoid a deeper downturn in the economy, which expanded at its slowest pace in 25 years in 2015.

China’s central bank injected an estimated $100 billion worth of long-term cash into the banking system on Tuesday.

Reporting by Winni Zhou and Nicholas Heath; Editing by Kim Coghill