China's service sector slows in August

City A.M. Reporter
China's fledgling services sector grew at the lowest pace on record in August, a private survey has shown, as new orders ebbed and measures to rein in the property sector started to pinch.

The slowdown in the services sector, which accounts for less than 45 per cent of gross domestic product, reinforces signs that China is losing steam but a hard landing is unlikely.

The HSBC's Services Purchasing Managers' Index (PMI), which provides a snapshot of conditions in industries from restaurants to computing, slid to 50.6 in August from July's 53.5, said Markit, the research firm that compiles the index.

The 50-point level demarcates expansion from contraction. The figures are seasonally adjusted.

Chnia's PMI reading for August was the lowest since the survey begun in November 2005 and was a touch lower than the previous trough of 51.2 during the global financial crisis.

The survey showed growth in new orders stayed above the 50 expansion-or-contraction level, although the sub-index hit its second-lowest point in the survey's history.

"Overall services sectors are set to slow as both credit and property tightening measures are filtering through," said Qu Hongbin, China economist at HSBC.

But the PMI reading still implied annual expansion of 8-9 per cent for the services sectors, Qu said in a note to clients.

The property market is unlikely to collapse not least because of Chinese households' low leverage ratio and credit tightening is approaching to an end, Qu said.

"This, plus the still resilient consumer spending, suggests China's services sector is likely to see moderation, not meltdown, in the coming months," he said.

Input prices remained elevated in August, with respondents citing higher wage costs, according to the survey.

In a bid to tame stubborn high inflation, the central bank has raised interest rates five times since October and lifted the deposit reserve requirement ratio nine times.

The government has also unveiled a flurry of steps to cool property price rises, including home purchase restrictions, the launch of a property tax and increased mortgage rates.

A separate PMI for China's services sector, published by the China Federation of Logistics and Purchase, dipped to 57.6 in August from 59.6 in July as railway investment fell.