July 6, 2020

China Service Sector Shows Expansion

BEIJING — Activity in China’s service sector defied the cooling of the country’s economy and expanded modestly in July, a private survey showed Monday. New business orders recovered from a multiyear low in a rare sign of resilience.

But that rise was tempered by a decline in prices charged by companies to a nine-month low, suggesting that demand was still too weak for them to raise prices, while business expectations hovered near their lowest level since 2005.

The HSBC/Markit purchasing managers’ index for the service industry stood at 51.3 in July, unchanged from June and just a whisker above a 20-month low of 51.1 struck in April.

It echoed data China’s National Bureau of Statistics had released over the weekend, which showed a reading of 54.1 last month, up from 53.9 in June.

A reading above 50 suggests business has grown from the previous month, while an outcome below 50 points to contraction.

Crucially, service companies are the biggest employers in China, at a time when the government is worried that the downturn could threaten social stability by driving up unemployment as Beijing tries to shift the economy away from a focus on manufacturing.

China’s economy is set to grow this year at its weakest pace since 1990, as flagging foreign and domestic demand weighs on exports and factory production. A slowdown in investment has further dragged on growth.

“China’s service sector has stabilized at a relatively low level of growth,” said Qu Hongbin, an economist at HSBC. “But profit margins continue to be squeezed. Without a sustained improvement in demand, services growth is likely to remain lackluster, putting downside pressures to employment growth.”

The subindex for new orders rebounded to 52.3 from the reading in June, which was the lowest reading in more than four years.

Financial markets have grown increasingly nervous about China’s economic health, despite reassurances from Beijing that it is on track to meet its growth target of 7.5 percent this year.

A pair of P.M.I. surveys of Chinese manufacturers last week showed a contradictory picture of factory production; the official figure was slightly stronger than expected in July among larger Chinese manufacturers, while the HSBC/Markit survey came in at an 11-month low.

“I am more worried about manufacturers. I don’t think the worst is over,” said Zhang Zhiwei, a Nomura economist in Hong Kong.

He said the service sector was holding up better than manufacturing, as it was not saddled with excess capacity and debt and was supported by demand intrinsically less volatile.

“Policy will continue to be tight, and growth will continue to slow in the second half of the year,” Mr. Zhang said.

The HSBC survey showed the employment subindex had slipped in July, although it remained above a four-year trough touched in April.

HSBC said 6 percent of survey respondents had increased their payrolls, with a particular focus on hiring graduates. In contrast, 2 percent of companies had shed jobs.

The service sector accounted for 46 percent of China’s economy in 2012, so a sharp slowdown in the industry would exacerbate concerns about slackening economic growth.

Service firms created 35 percent of all jobs in China in 2011, overtaking manufacturers, who accounted for 30 percent of hiring.

Article source: http://www.nytimes.com/2013/08/06/business/global/china-service-sector-shows-expansion.html?partner=rss&emc=rss