China's service activity moderates amid slowing economy

BEIJING — Growth in Chinese service sector business activity continued to soften in April as a private survey showed Thursday that an index for the sector fell to the lowest in 11 months.

The Caixin General Services Purchasing Managers' Index (PMI), which tracks over 400 service sector companies in China, slipped to 51.5 in April from 52.2 in March, according to the survey sponsored by Caixin Media Co Ltd.

A reading above 50 indicates expansion, while a reading below 50 represents contraction.

The decline follows a drop in the Caixin Manufacturing PMI to 50.3 last month from 51.2 in March.

As a result, the Caixin China Composite Output Index, which covers both manufacturing and services, fell to 51.2 in April from 52.1 in the previous month, the lowest in the past 10 months.

"Growth in both manufacturing and services decelerated in April, reflecting a clear slowdown in the expansion of the Chinese economy," said Zhong Zhengsheng, director of macroeconomic analysis at CEBM Group, a subsidiary of Caixin Insight Group.

In breakdown, the business activity index posted only a modest expansion. Growth in new orders picked up and stayed solid. The rate of job creation was the slowest seen in 2017 so far and modest overall.

On the bright side, Chinese service providers saw a slower increase in overall cost burdens in April, with the rate of input price inflation easing to a six-month low.

Service companies remained generally optimistic that business activity will increase over the next year in April. However, the degree of positive sentiment slipped to a five-month low, according to the survey.

The weakening trend is in line with the official service sector PMI, which came in at 54 in April, down from 55.1 in March, according to the the National Bureau of Statistics (NBS).

The service sector has played an increasingly important role in the Chinese economy, as it creates nearly half of the country's jobs, and is critical to rebalance the economy from labor-intensive manufacturing to service economy and consumer spending.

In the first quarter, the service sector accounted for 56.5 percent of the overall economy. In terms of growth, it has left agriculture and the secondary industry far behind.

However, service activity growth has softened in each month of 2017 so far, as tepid growth in the manufacturing sector weighed on manufacturing-related service industries.

The Chinese government has rolled out a slew of policies to support service sector companies. In 2016, it introduced value-added (VAT) reform, the most significant tax overhaul for two decades, to reduce the burden on service industries, which have historically paid a disproportionate share.

In 2016, the number of newly established businesses in the service sector increased by a brisk 25 percent, hiring 43.5 percent of the labor force, compared with 36 percent in 2012.

China has had a strong start this year, with GDP expanding 6.9 percent in the first quarter, well above the annual growth target of around 6.5 percent.

"A turning point in growth appeared to have emerged at the beginning of the second quarter. Investors should be cautious about downward risks in the economy," said Zhong Zhengsheng.