* HSBC services PMI shows weakest growth in 10 months
* New order growth cooled, job creation capped
* Combined with factory PMIs shows pressure on jobs market
* HSBC PMI shows some evidence demand is muted
By Nick Edwards
BEIJING, July 4 (Reuters) – China’s services firms grew at
their slowest rate in 10 months in June, easing back from May’s
19-month peak, as new order growth cooled albeit while marking
43 months of consistent expansion, a private sector survey
showed on Wednesday.
The China HSBC services purchasing managers index (PMI)
stood at 52.3 in June, down from 54.7 in May, indicating a
marginal expansion of activity that capped job creation at a
three-month low and bolstering expectations that Beijing will
deliver further policy measures to boost growth.
“Services activities softened in June due to slowing new
business flows, which translated into only marginal growth of
employment,” Qu Hongbin, the Hong Kong-based chief China
economist at survey sponsor, HSBC, said in a statement.
“This, plus the ongoing slowdown of manufacturing sectors,
points to growing pressures on the jobs market – the last thing
Beijing policy makers want to see. But with inflation also
falling fast, we believe Beijing has sufficient room to step up
easing and revive domestic demand,” Qu said.
The HSBC index, compiled by UK data provider Markit and
tracking smaller firms mainly in the private sector, completes
the series of China PMI releases for June that broadly leave
investors anticipating more policy easing in the near future.
Two surveys of China’s vast manufacturing sector earlier in
the month showed factory activity fell to a seven-month low in
June, dampened by both external and domestic weakness.
China’s official services PMI, released on Tuesday, rose to
56.7 to suggest the sector was expanding at its fastest pace in
three months.
The difference between the competing indexes is a result of
using differing methodologies and samples.
Chinese policymakers surprised markets in June with a 25
basis point cut to borrowing rates, bringing the official
one-year lending rate down to 6.31 percent in the wake of a slew
of deteriorating data.
An outright interest rate cut had not been the market
consensus. Instead, economists had expected Beijing to continue
a programme of reducing the required reserve ratio (RRR) of
banks – a further cut to which many investors believe could come
later this month as data on the second-quarter is published.
China has lowered the RRR, or the amount of cash banks must
keep in reserve, in three 50-basis point steps since November
2011, freeing up an estimated 1.2 trillion yuan ($190 billion)
for fresh lending. The last cut was in May.
On the fiscal front, Beijing has fast-tracked investment
projects and rolled out new incentives to spur consumer spending
on energy-efficient products, but studiously avoided any hint so
far of putting together a repeat of the 4 trillion yuan fiscal
spending package rolled out during 2009-10 during the global
financial crisis.
WANING CONFIDENCE
China’s fast-growing services industry – accounting for
about 43 percent of economic output – has so far weathered the
global slowdown much better than the factory sector.
Relatively robust readings of both services indexes
reflected long-term optimism businesses would benefit from the
gradual rebalancing of economic activity towards services and
consumption.
The China HSBC services PMI has been above 50 – demarcating
expansion from contraction – in every month since the index was
first issued in November 2005.
But signs of waning confidence near term are emerging.
The China HSBC services new business sub-index hit an
11-month low of 52.2 in June, with the proportion of survey
respondents reporting an increase in business activity barely
outpacing those reporting a decrease on the previous month, at
16 percent and 14 percent respectively.
“Confidence in the one-year business outlook remained
below-trend, with panellists expressing concerns regarding the
future path of economic growth,” Markit said in a statement.
“The index measuring trends in overall new work was at a
10-month low. Anecdotal evidence provided by survey respondents
suggested that reduced new order intakes reflected muted demand
conditions,” the statement added.
A third consecutive monthly reading below 50 in the prices
charged sub-index underscored the softness of demand, as did a
sharp fall in the input price sub-index.
But easing price pressures are seen by economists as
positives, implying the central bank has room to ease monetary
policy without igniting inflation risks – a key worry for
Beijing which is obsessed with managing the impact of rising
costs on social stability especially this year when the
Communist Party will change its senior leadership.
