Fears mount over China economy amid bank crackdown

 
Tim Wallace
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CHINA’S services sector is slowing down more quickly than expected, sparking new fears over the fate of the world’s second largest economy through 2014.

Influential business surveys released yesterday showed growth slowing to its weakest pace in more than two years in December.

HSBC and Markit’s purchasing managers’ index (PMI) came in at 50.9 in December for services, down sharply from the 52.5 recorded in November and barely above the 50 level which indicates economic output holding flat in the month.

“Service providers also signalled a modest rate of new order growth in December, though it was the weakest in six months,” said the report. “Service providers signalled a reduced amount of outstanding business, following no change one month previous.”

The slowdown represents a stark contrast to the picture in the UK and US where the economies are recovering rapidly after years of stagnation or recession.

The downbeat data came as leaked government papers showed increased concern at the highest level over shadow banking – a loose term for firms like insurers and asset managers extending credit and acting in a similar way to banks.

Top politicians are thought to be worried that bad loans could hit the institutions and by extension the government and the wider economy hard as growth slows down.

And over the weekend the head of the State Administration of Foreign Exchange called for the country to consider a financial transactions tax to slow down flows of credit and assets as China’s financial system opens up to the rest of the world.

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