Fresh Signs of a Cooling Economy in China

January 6, 2014

By REUTERS

BEIJING — Growth in China’s services industries slowed in December, separate surveys have found, echoing a slowdown in manufacturing and confirming views that the economy lost steam at the end of last year.

HSBC on Monday released its purchasing managers’ index for services, compiled by Markit Economics, showing a drop to 50.9 in December, its lowest level since August 2011, from 52.5 in November. But the figure remained above the 50-point level that indicates expansion in activity. New business growth was the slowest in six months.

A similar survey by China’s National Bureau of Statistics, released Friday, also showed a slowdown in service sector growth in December, to a four-month low of 54.6, from the previous month’s 56.

Indexes from the government and HSBC last week showed that China’s factory activity slowed in December, suggesting the moderation in the country’s growth in the final quarter of 2013 was broad-based.

The weaker purchasing managers’ indexes contributed to a decline in Asian markets on Monday, on concern over whether China’s slowdown would continue into the first quarter.

“What has been the principal sort of driver of the market since the beginning of the new year has been a disappointment of the Chinese P.M.I. data,” said Guy Stear, Asian credit and equity strategist in Hong Kong for Société Générale, adding that growth in China is a “focal point” for markets.

MSCI’s broadest index of Asia-Pacific shares excluding Japan was down 0.6 percent, reaching a two-week low and adding to a 1.1 percent drop on Friday. China’s CSI 300 index fell 2.3 percent, hitting a five-month low.

China’s economy has regained some momentum since midyear after a protracted slowdown. While the economy was expected to lose momentum as the government reined in rampant credit growth and demand for China’s exports remained subdued, activity remained resilient into the fourth quarter.

Beijing has said it will accept slower growth as it tries to reshape the economy toward sustainable growth that is based on consumer demand, after three decades of breakneck expansion driven by exports and credit.

China’s economic growth is expected to come in at 7.6 percent in 2013, the government has said, just above the official target of 7.5 percent and slightly below the 7.7 percent of 2012. Data for gross domestic product in 2013 are scheduled to be released Jan. 20.

“The implementation of reforms such as lowering the entry barriers for private business in service sectors and expanded V.A.T. reforms should help to revitalize service sectors in the year ahead,” said Qu Hongbin, the chief economist for China at HSBC, referring to changes in the value-added tax system.