Services play an increasing role in the Chinese economy, adding significance to the release yesterday of negative data from the sector. David Gray / Reuters
Services play an increasing role in the Chinese economy, adding significance to the release yesterday of negative data from the sector. David Gray / Reuters

China's service sector growth slips

Growth in China's increasingly important service sector expanded at its slowest pace in five months in February, reinforcing the view that the recovery in the world's second-largest economy remains modest.

China's non-manufacturing purchasing managers' index (PMI) stood at 54.5 according to a statement from the National Bureau of Statistics (NBS), down from January's 56.2 and the slowest pace of expansion since September - the low point of China's recent economic downturn.

"This showed that market demand in the non-manufacturing sector maintained steady growth trend, but the pace slowed," the NBS said.

The PMI new orders subindex fell to 51.9 in February from 53.8 in the previous month. The subindex for construction in February fell to 58 from 61.6 in January.

But the sectors of air and rail transport, environmental protection, logistics and retail maintained robust growth, with their sub-indexes hovering over 60 in February, the NBS said.

Although a five-month low, the PMI reading indicates that the service sector is still experiencing solid growth - 50 demarcates expanding from contracting activity, according to the survey's methodology.

Nevertheless, the retreat to a five-month low for service growth mirrors that in the manufacturing sector, indicated by both official and private-sector surveys that were published on Friday.

China's factory growth cooled to multi-month lows in February as domestic demand dipped, weighing on companies already hit by slack foreign sales and underlining the patchiness of the country's economic recovery. But the bigger-than-expected retreat in two purchasing managers' indexes (PMIs) on Friday does not signal China's economy is slipping into another slowdown, analysts said. Instead, they show China's recovery this year would be mild, as widely expected.

Unlike recent months when lethargic foreign demand for Chinese goods was the Achilles' heel for factories, domestic demand was surprisingly soft in February and an additional challenge for firms already fighting weak sales abroad.

The official PMI manufacturing survey, the larger of the two surveys with a sample size of 3,000, showed growth in new orders fell while export orders contracted from January.

New orders hit a four-month low of 50.1 while new export orders dropped to a five-month low of 47.3. In the HSBC survey, the new orders subindex fell to 51.4 from January's two-year-high, while export orders were little changed above 50 points.

China's statistics agency said large companies grew in February while mid- and small-sized firms shrank.

In 2012, the Chinese economy grew at its slowest pace in 13 years, expanding by 7.8 per cent. Growth accelerated in the fourth quarter as the economy responded to the government's pro-growth policies.

Analysts believe Beijing will pursue policies this year that keep growth stable while creating scope to make reforms designed to rebalance China's economy away from a dependence on investment and the external sector.

A Reuters poll in January forecast China's economic growth was likely to rebound to 8.1 per cent in 2013 from 7.8 per cent last year, but the recovery could fizzle in 2014 as a pick-up in inflation forces the central bank to revert to modest policy tightening, a Reuters poll shows.

* Reuters


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