Services sector expands with manufacturing

A waitress fans a cloth napkin at a hotel restaurant in Foshan, Guangdong province. CHINA DAILY

PMI rebounds to 15-month high in June alleviates concerns over growth slowdown, economists say

Activity in China's services sector expanded at its fastest pace in 15 months in June, said a private survey released on Thursday, further reinforcing signs of a steady recovery in the world's second-largest economy.

The HSBC/Markit services Purchasing Managers Index hit a 15-month high in June, rebounding to 53.1 from 50.7 in May, well above the 50-point level that separates expansion in activity from contraction.

The official services PMI for June, also released on Thursday by the National Bureau of Statistics and China Federation of Logistics and Purchasing, dipped to 55 from 55.5 in May. Still, the number is well above 50 and is the second-highest number the year.

"The expansion in the services sector reinforces the recovery seen in the manufacturing sector and signals a broad-based improvement over the month," said Qu Hongbin, chief economist for China at HSBC Plc.

"We think the economy is slowly turning around and expect the recovery to be supported by accommodative fiscal and monetary policies over the coming months," he said.

The PMI for the manufacturing sector, which was released a day earlier by HSBC/Markit, rose to 50.7 in June from 49.4 in May, surging past the 50-point level for the first time since December. It indicated that China's manufacturing recovery goes hand-in-hand with expansion in the services sector.

"What is noteworthy is the rebound in the services businesses related to manufacturing activities," Cai Jin, a vice-president at the China Federation of Logistics and Purchasing, said in a statement.

"New orders from commodity retailers showed a big rebound, indicating that the stabilizing growth momentum in the factory sector is filtering into the services industry," he said.

A sub-index measuring new business jumped to 53.8 in June, the strongest expansion since Jan 2013, which suggested the domestic economy has regained some internal strength following the government's stimulus measures.

China has stepped up policy support in recent months to ensure that the slowing economy does not slip below the government's bottom line. Some of the measures unveiled by the government include targeted reserve requirement ratio cuts for some banks, quicker fiscal spending and hastening construction of railways and public housing projects.

A sub-index gauging business sentiment picked up slightly in June from May's 11-month low, though the reading remained weak in the context of historical data.

Stronger orders and the improving business outlook prompted services firms to hire more workers last month, as indicated by the employment sub-index, which rose to a three-month high.

The official PMI data also showed strong confidence among companies (60.4), although it dipped a bit over May, along with a drop in new order growth.

Analysts said the services sector has become a bastion to ensure China's employment despite a slowdown in the broader economy. Although China's GDP growth has slowed to a 18-month low of 7.4 percent in the first quarter, employment has been little affected.

China created 6 million new jobs during the first five months of the year, making it easier to achieve the government target of adding 10 million new jobs for 2014. The surveyed unemployment rate fell to 5.07 percent in May from 5.15 percent in April, Premier Li Keqiang said in June.

The services sector has steadily expanded in recent years and stood at 46 percent of China's GDP in 2013. It rose to 49 percent in the first quarter.