China's service industry solid despite fall in PMI index

A key private gauge of services activity indicates the industry has continued to expand in April.

According to economists, this is good news for policymakers who are trying to bolster the world's second-largest economy.

The China Caixin services purchasing managers' index (PMI) released on Thursday stood at 51.8 for April, down from 52.2 in March. It remains above the expansion-contraction demarcation line of 50.

A reading above 50 indicates the sector's activity is growing, while one below that level suggests a contraction.

The index, compiled mainly based on survey of small and medium-sized enterprises, is roughly in line with Sunday's official services PMI, which came in at 53.5 for April, down from 53.8 in March.

He Fan, chief economist at Caixin Insight Group, sent a note on Thursday saying, "The overall performance of the sector, though falling by 0.4, remains in expansionary territory. That helped offset some of the negative impact caused by the sluggish manufacturing sector."

The Caixin manufacturing PMI released earlier on May 3 fell from 49.7 in March to 49.4 in April.

According to a news release by Markitt, a research firm that released the monthly index with Caixin, the sub-index of employment of the services sector witnessed a major uptick above the neutral 50-point level, which is mainly driven by quickening pace of new order growth — 12 percent of respondents recording higher new business compared with less than 3 percent claiming a decline.

Gao Huiqing, an expert with the economic forecasting department at the State Information Center, said that the service sector, which since last year has become the new driving force of the economy, is expected to see growth in the second and third quarters.

"The sector wouldn't be affected by the downward pressure that much compared to the flagging manufacturing," said Gao.

"Growth of employment, especially in high-tech and tourism industries, will continue to increase in the long-term."

However, Gao pointed out that a good start in the first quarter has a lot to do with the government's stimulus efforts, which he thought may still lack a solid foundation for a sustained recovery.

"What is worrying is that structural problems and supply-side reform need to be further implemented," said Gao.

"The government needs to keep implementing moderate stimulus policies to prevent any hard landing as the downward pressure still poses risks."