China services growth slows sharply, adds to recovery risk

Sun May 5, 2013 11:33pm EDT
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BEIJING (Reuters) - Growth in China's services sector slowed sharply in April to its lowest point since August 2011, a private sector survey showed on Monday - fresh evidence of rising risks to a revival in the world's No.2 economy.

The HSBC services Purchasing Managers' Index (PMI) fell to 51.1 in April from 54.3 in March, with new order expansion the slowest in 20 months and staffing levels in the service sector decreasing for the first time since January 2009.

Two separate PMIs last week had already shown that China's manufacturing sector growth slowed, With the weakness spreading to services, which make up almost half of gross domestic product, the risk to the recovery may be increasing.

"The weak HSBC service PMI figure provides further evidence of a slowdown not only in the factory sector but also in the service sector," said Zhang Zhiwei, chief China economist at Nomura Securities in Hong Kong.

"This confirms our worries about insufficient growth momentum in the economy, which we expect to slow to 7.5 percent in the second quarter."

The HSBC services PMI follows a similar survey by China's National Bureau of Statistics, which found non-manufacturing activity eased to 54.5 from 55.6. The official PMI is more weighted towards large state-owned firms.

Readings above 50 indicate activity in the sector is growing, while those below 50 indicate it is contracting.

The HSBC survey showed that the sub-index measuring new business orders dropped sharply to a 20-month low of 51.5 in April, with only 15 percent of survey respondents reporting an increased volume of new orders that month, HSBC said.

"This started to bite employment growth. All these are likely to add some risk to China's growth in 2Q, as there's still a bumpy road towards sustaining growth recovery," said HSBC's China chief economist Qu Hongbin.   Continued...

A parking lot is seen along the Huangpu River near the financial district of Pudong in Shanghai December 12, 2012. REUTERS/Carlos Barria