China services growth modest, adds to economy concerns

Tue Jun 4, 2013 11:53pm EDT
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BEIJING (Reuters) - Activity in China's services sector expanded in May but at a pace little changed from the month before, the latest sign that the world's No. 2 economy is struggling to regain momentum.

The HSBC/Markit Purchasing Managers' Index (PMI) for the services industry, released on Wednesday, inched up to 51.2 last month after seasonal adjustment, the second-lowest reading since August 2011. It had registered 51.1 in April.

The services sector accounted for 46 percent of China's gross domestic product in 2012, and the weak growth seen in the survey adds to concerns raised by earlier PMI surveys on the manufacturing sector over the loss of momentum in China.

"A soft patch in manufacturing growth continues to weigh on this industry and adds more downside risks to China's growth rate in 2Q," said HSBC's China chief economist, Qu Hongbin.

Earlier this week, China's official services PMI slipped to 54.3 in May from 54.5 in April, and while the official manufacturing PMI ticked up to 50.8 in May from 50.6, the HSBC/Markit manufacturing PMI dropped to 49.2, the lowest level since October 2012 and down from 50.4 in April.

A reading above 50 indicates expansion of business and one below 50 implies contraction.

Attention now turns to exports, industrial output and retail sales data for May due later this week, with expectations that these will also confirm the weakness in the economy.

"We are not so optimistic on economic growth in the second quarter. We expect GDP growth will slow to 7.6 percent in Q2," said Shen Lan, economist at Standard Chartered in Shanghai.

"China's economy is facing pressures of destocking while it still takes time for the credit growth to feed into firms' investment. We think the recovery will be more obvious in the second half of the year," Shen said.   Continued...

An employee works inside a textile factory in Linhai, Zhejiang province, May 30, 2013. REUTERS/William Hong