21 October 2016
Meager growth in China's service sector cannot offset the slump in manufacturing. Photo: Bloomberg
Meager growth in China's service sector cannot offset the slump in manufacturing. Photo: Bloomberg

China services expand at second-slowest rate on record

Activity in China’s service sector expanded at its slowest rate in 17 months in December, a private survey showed Wednesday, in a further indication that the world’s second-largest economy may be losing steam.

Policymakers and economists have been hoping Beijing’s push to restructure the economy with a greater emphasis on services and consumption would more than offset the economic drag from persistent factory weakness, but the survey’s findings do not bolster that view.

The Caixin/Markit Purchasing Managers’ Index(PMI) fell to 50.2 in December from 51.2 in November, Reuters reported.

The reading was the lowest since July 2014 and the second-lowest since data collection began in late 2005.

“In light of the setback to services sector growth, the government needs to gradually relax restrictions in the sector,” He Fan, chief economist at Caixin Insight Group, was quoted as saying.

A reading above 50 points indicates growth on a monthly basis, while one below that points to a contraction.

A sub-index measuring new business fell to 50.6 in December from November’s 51.1, as firms reported relatively subdued demand, though service companies added workers at a slightly faster clip.

Their overall costs continued to rise, largely owing to higher salaries, but increased competition meant they had to cut selling prices for the fourth month running.

China’s service sector has been one of the few bright spots in the economy over the last year, helping to offset a prolonged slump in manufacturing, and the government has been keen to promote higher consumption to replace flagging old growth drivers such as heavy industry and exports.

The results of the private survey contrast with an upbeat official service sector survey on Friday, which showed activity picked up in December to a 16-month high of 54.4.

The official survey focuses more on larger firms, while the private survey tends to look at smaller ones, which are showing more financial strains from the prolonged slowdown in economic growth.

A composite Caixin output index covering both manufacturing and services suggests the downdraft from factory weakness is still somewhat stronger than the contribution from services.

The index shrank for the fourth time in five months in December, albeit marginally.

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