China Services Growth Falls to 11-Month Low

(Beijing) — Activity in China’s services sector grew at its weakest rate in 11 months, a survey sponsored by Caixin showed on Thursday, in a further sign the world’s second-largest economy is losing some steam.

The Caixin China General Services Business Activity Index fell for the fourth straight month to 51.5 in April, down from 52.2 in March and the lowest since May 2016’s 51.2, according to the poll compiled by international information and data analytics provider IHS Markit.

A reading above 50 suggests expansion, while anything below that points to contraction.

The Caixin China Composite Output Index, which covers production at both manufacturing and services companies, fell to 51.2 in April from 52.1 in the previous month, the lowest number since June, according to the release.

The figures provided further evidence that the Chinese economy might be losing traction after growth accelerated for two straight quarters. Data released Tuesday showed that the Caixin China General Manufacturing Purchasing Managers’ Index (PMI) slipped to 50.3 last month from 51.2 in March, the weakest in seven months. 

China’s year-on-year economic growth accelerated to 6.9% in the first three months of the year. In the last quarter of 2016, the growth rate rose to 6.8%, in the first pickup in two years, official data showed.

But analysts have warned that government measures to cool the property market and a possible tightening of monetary policies to rein in debt — especially financial leverage — could undermine a sustained recovery.

Although companies remained generally positive in April about growth prospects for the year ahead, the overall degree of confidence moderated to a five-month low, with manufacturers the least optimistic toward their one-year business outlook, the Caixin survey showed.

“A turning point in growth appeared to have emerged at the beginning of the second quarter,” Zhong Zhengsheng, director of Macroeconomic Analysis at CEBM Group, a subsidiary of Caixin Insight Group, said in a statement about the April data. “Investors should be cautious about downward risks in the economy.”

The amount of new business placed with service providers expanded at a quicker pace in April than March on new product launches and better market conditions, the survey of the services industries showed. The survey covers more than 400 companies.

Cost burdens of service companies continued to increase last month on rises in raw material prices and salaries, but at a pace that was the slowest in six months. The gain in prices charged by service providers in April was marginal, although it marked one of the fastest rates in three and a half years.

Services industries — which include finance, real estate and marketing, transportation, and retailing — have become an increasingly important part of the Chinese economy, reflecting its shift away from traditional heavy-industry manufacturing and exports. Last year, they accounted for 51.6% of the economy, 1.4 percentage points higher than in 2015, and contributed to nearly 60% of the growth in domestic gross product, according to the National Bureau of Statistics (NBS).

Services industries are more labor-intensive than manufacturing, and policymakers are counting on them to create more jobs.

The NBS on Sunday released its non-manufacturing PMI for April, which dipped to a six-month low of 54.0 from 55.1 in March, with activity in sectors such as road transportation and real estate continuing to contract.

The NBS blamed the fall in the non-manufacturing PMI mainly on slower expansion in the manufacturing industry that dragged on growth in the manufacturing service sector. The official manufacturing PMI was at 51.2 in April, down from 51.8 in March and the weakest in six months.

Contact reporter Fran Wang (fangwang@caixin.com)