Services mitigate manufacturing malaise

Workers load cargo onto an airplane in Nantong, Jiangsu province. China's non-manufacturing Purchasing Managers'Index in March fell slightly to 54.4 from 55 in February. [Photo/China Daily]

Government opts for 'soft' stimulus measures to achieve growth targets this year

The steady expansion of Chinese service businesses in March comforted policymakers during a period of gloom for the manufacturing sector, but it is unlikely to stop the slowing momentum for economic growth in the first quarter of the year.

The government has decided to take "soft" stimulus measures, including the renovation of shantytowns, railway construction and preferential tax policies for more small companies to support growth.

The National Bureau of Statistics and the China Federation of Logistics and Purchasing reported on Thursday that the non-manufacturing Purchasing Managers' Index in March fell slightly to 54.4 from 55 in February, mainly because of a slowdown of growth in new orders.

It indicated the non-manufacturing industry still maintained a relatively fast growth rate, said Cai Jin, vice-president at the federation.

The reading in January was 53.4, the lowest level since 2009.

A separate survey by the British bank HSBC Holdings Plc showed the services PMI at 51.9 in March, up from 51 in February, suggesting growth in service activity strengthened to a four-month high.

Qu Hongbin, chief economist in China and the joint head of Asian Economic Research at HSBC, said the latest PMI figure "suggests a modest improvement of business activity in March, with employment expanding at a faster pace".

The HSBC survey showed that higher volumes of new work led service providers to expand their payroll numbers at the fastest rate since June 2013, which offset job losses by manufacturers.

"However, combined with the weaker manufacturing PMI reading, the underlying momentum of the economy is softening, which should ultimately weigh on the labor market. The government should focus on leading indicators to launch fine-tuning measures that support growth," said Qu.

On Tuesday, HSBC released its March manufacturing PMI of 48, down from 48.5 in February, a deterioration for the third consecutive month.

Meanwhile, the official manufacturing PMI edged up in March to 50.3 from the February reading of 50.2, but still lower than the average of 51.3 in the fourth quarter of 2013.

Louis Kuijs, chief economist in China at Royal Bank of Scotland Plc, said: "Swings in manufacturing growth tend to be more pronounced than those in the services sector. In China, the role of the services sector is increasing trend-wise because of a changing growth pattern."

According to National Bureau of Statistics data, the service sector grew faster than industry last year. "The non-manufacturing PMI has held up better in recent months, and this has helped to keep the labor market healthy," Kuijs said.

Premier Li Keqiang on Wednesday chaired a State Council executive meeting at which he announced the modest economic support measures. The meeting also clarified financing sources for the planned investment projects.

It suggests that credit supply may rebound in the second quarter, said economists from Nomura Securities Co Ltd in a research report. "These measures clearly show that the pace of policy easing is picking up," they said.