China services PMI falls to 10-mth low

Jul 04 2012, 10:46 IST
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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. (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. (Reuters)
SummaryCombined with factory PMI shows pressure on jobs market.

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

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