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China July official services PMI dips to 6-month low

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[August 05, 2014]  BEIJING (Reuters) - Growth in China's services sector slipped to a six-month low in July as growth in new orders stagnated, data showed, taking some of the shine off an industry that has been a bright spot in the Chinese economy this year.

The official Purchasing Managers' Index (PMI) for the non-manufacturing sector slowed to 54.2 in July from June's 55, the National Bureau of Statistics said on Sunday. That is the weakest reading since January.

A reading above 50 in PMI surveys indicates an expansion in activity while one below the threshold points to a contraction.

The slight retreat in the services sector came at a time when China's factories have started to recover, having earlier this year been one of the drags on growth in the world's second largest economy due to faltering demand at home and abroad.

In contrast, China's services companies have held up through each slowdown since PMI records began in January 2007, with the index staying above 50 in every month.

A mixed performance from other measures in Sunday's PMI suggested that the services sector enjoyed an encouraging, albeit slightly muddy, outlook.

Cai Jin, vice president of China Federation of Logistics & Purchasing, which publishes the services PMI in conjunction with China's government, advised investors to not read too much into the divergence.

"The volatility in the various sub-indices for the July services PMI was not great," Cai said. "The market in general is still stable."

In contrast, he said weakness in China's property sector persisted last month due to seasonal factors and muted demand.

"The market remains subdued. Prices are still in a downtrend, and declines have increased."

China's once-heated housing market has slowed this year as sales and prices turned south in their biggest pull-back in two years, driven in part by a cooling economy, and after the government tried for almost five years to calm the market.

But the extent and breadth of the downturn have surprised analysts, with many worrying that it is the biggest threat to the health of China's economy this year.

To limit the drag from a cooling housing sector on the overall economy, nearly half of China's regional governments have started relaxing curbs on home purchases this year, reversing controls that were instituted from as early as 2009.

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The services PMI followed two manufacturing PMIs released on Friday that showed China's factory sector posting its strongest growth in at least 1-1/2 years last month, suggesting that the economy is gathering steam after a spate of stimulus measures.

Economic growth picked-up slightly in the second quarter, accelerating to 7.5 percent from an 18-month low of 7.4 percent between January and March.

Sunday's survey showed a sub-index for business expectations rose to 61.5 last month from June's 60.4, while the measure for new orders was flat at 50.7.

Production prices fell to 53.4 from June's 56, while final sales prices also dropped to 49.5 from June's 50.8.

In fact, Chinese authorities have steadily loosened monetary policy since April to energise the economy, including relaxing the reserve requirements for some banks. The construction of railways and public housing projects have also been hastened to spur investment.

The services sector, which accounted for 45 percent of China's gross domestic product in 2012 and roughly half of all jobs in the country, is expected to post steady growth in coming years as the economy matures.

(Reporting by China Economics Team; Editing by Simon Cameron-Moore)

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