Bloomberg News

China’s Expansion in Services May Ease Slowdown Concerns

October 03, 2011

(Updates with economist’s comment in fourth paragraph and today’s decline in Asian stocks in fifth paragraph.)

Oct. 4 (Bloomberg) -- China’s service industries expanded at a faster pace last month, rebounding from a deceleration in August, a pickup that may ease concern the world’s second- largest economy is slowing.

A purchasing managers’ index rose to 59.3 from 57.6 in August, driven by retail spending, the China Federation of Logistics and Purchasing said on its website yesterday. HSBC Holdings Plc and Markit Economics said a separate index gained to 53 in September from a series-record low of 50.6 the previous month. Numbers above 50 indicate expansion.

Premier Wen Jiabao’s government is seeking to defuse the fastest gains in consumer prices since 2008 without a collapse in China’s growth, the strongest among the major economies. Twelve percent of global investors in a Bloomberg poll last week predicted growth in China will slow to less than 5 percent within a year, a pace unseen in the past two decades. HSBC foresees an expansion of 8.5 percent to 9 percent in coming quarters, with third-quarter figures due Oct. 18.

“Resilience in the service sector, boosted by rising retail spending, could act as a buffer when manufacturing is slowing down,” said Banny Lam, a Hong Kong-based economist at CCB International Securities Ltd.

Asian stocks fell today on concern that Europe’s debt crisis will worsen, while China’s markets were closed for a holiday. The MSCI Asia Pacific Index declined 1.6 percent as of 9:05 a.m. in Tokyo.

Investor Pessimism

Fifty-nine percent of respondents in the quarterly Bloomberg Global Poll of investors, analysts and traders who are Bloomberg subscribers said economic growth in China may decline to less than 5 percent annually by 2016. Growth was 9.5 percent in the second quarter.

The manufacturing PMI published Oct. 1 by the logistics federation rose for a second month, to 51.2, with export orders gaining and a measure of factories’ input costs moderating. A separate PMI from HSBC and Markit on Sept. 30 was unchanged from August, at 49.9.

The Oct. 1 manufacturing reading was the highest in four months and exceeded the 51.1 median estimate in a Bloomberg News survey of 13 economists.

‘Bottoming Out’

“September’s HSBC Services PMI rebounded meaningfully, pointing to a possible bottoming out of the services economy towards the end of the year,” Qu Hongbin, HSBC’S chief economist for China, said in a statement. “Combined with an improvement in the manufacturing PMI, this implies that despite the global slowdown China is still well on track for a soft landing.”

Apple Inc., the maker of the iPhone, is among companies betting on Chinese demand, opening a third store in Shanghai last month.

Consumer prices in China rose 6.5 percent in July from a year earlier, the most in three years, before easing to a gain of 6.2 percent in August. The People’s Bank of China has raised interest rates five times and increased the reserve requirement nine times in the past 12 months. The statistics bureau is scheduled to release inflation data for September on Oct. 14.

Wen, on the eve of the weeklong National Day holiday that began Oct. 1, said the trend of relatively fast consumer-price gains was “under control.” China’s markets are closed Oct. 3 to Oct. 7 for the holiday.

--Joshua Fellman, with assistance from Marco Lui and Sophie Leung in Hong Kong and Jessica Zhou and Michael Forsythe in Beijing. Editor: Scott Lanman, Christopher Wellisz

To contact Bloomberg News staff for this story: Joshua Fellman in New York at jfellman@bloomberg.net

To contact the editor responsible for this story: Paul Panckhurst at ppanckhurst@bloomberg.net


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