HSBC: China's service PMI rises to five-month high

Growth in China's services sector hit a five-month high in August underpinned by new orders and business optimism, a private survey showed on September 3, 2013, adding to views that the world's second-largest economy had avoided a sharp slowdown.

The Markit/HSBC Services Purchasing Managers' Index climbed to 52.8 in August after seasonal adjustments, up from July's 51.3 and the highest since March. The reading was well above the 50 level that demarcates an acceleration in activity from a slowdown, although a sub-index for employment shrank.

The outcome was roughly in line with China's official non-manufacturing PMI on September 3,2013, which showed the services sector grew steadily in August as domestic demand picked up. The official survey is weighted more towards bigger and state-owned companies.

Qu Hongbin, an HSBC economist, cited new business growth as the key driver of the index and expected growth momentum of the services sector to be sustained in future.

"A filter-through impact of VAT reform, combined with a rebound in manufacturing output, is expected to support service industry growth in the coming months," Qu said.

As recently as a month ago, investors had worried that China's economy was slipping into a deeper-than-expected downturn, especially after its money market was hit by an unprecedented cash crunch in June.

But policymakers have stepped in with a series of measures aimed at stabilizing the economy, including quickening railway investment and public housing construction and introducing policies to help smaller companies with financing needs.

Earlier this week, both the official and Markit/HSBC PMI surveys of Chinese manufacturers showed factory activity accelerated in August.

The services industry is an increasingly important pillar in China's economy, especially as the government seeks to expand domestic consumption to drive growth. It accounted for about 45 percent of the economy in 2012 and is the biggest employer in China.

Firms in the survey reported that stronger demand and promotions lifted new orders, which rebounded to 53.2 in August and marked the fastest growth rate since March, HSBC said.

Companies also expressed an increased level of optimism towards future output, with the sub-index for business expectations improving to a five-month high.

Average input costs also increased modestly and output charges were raised for the first month in four.

On the downside, employment in the services sector contracted for the first time since April, as service providers saw their profit margins squeezed.