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China's Service Sector Expands; Business Sentiment Rises

China's Service Sector Expands; Business Sentiment Rises
4/5/2012 12:13 AM ET

China's service sector expanded notably in March, though at a slower pace compared to the previous month, a survey by Markit Economics revealed Thursday. Firms remained fairly upbeat about their business prospects with confidence jumping to a 11-month high.

The headline seasonally adjusted HSBC/Markit Business Activity Index, an indicator of activity in the service sector, scored 53.3 in March compared to 53.9 in February.

An index reading above 50 indicates expansion of the sector, while a reading below 50 suggests contraction. Despite the fall, the latest score indicated notable improvement in service sector operating conditions.

The survey also showed that the level of optimism among service providers regarding the outlook for activity in one year's time climbed to a 11-month high in March. Despite the improvement, confidence was weaker than the long-run trend and this reflected state-led policies aimed at cooling the growth of the property sector.

New business received by service providers rose again in March, extending the current period of growth to 40 months. Still, jobs growth was the weakest in the current 38-month of expansion.

Meanwhile, the Composite Output Index which measures the performance of both services and manufacturing sectors, fell to 49.9 from 51.8. The reading, which is close to the no-change mark of 50, pointed to a stagnation of business activity in the Chinese private sector, as the weakness in manufacturing offset service sector growth.

Weak job growth in the service sector combined with job shedding in the manufacturing sector, meant that staff numbers fell for the first time in three years at the composite level, Markit said.

Markit's survey of the Chinese manufacturing sector, published earlier this week, revealed widespread weakness and reported a contraction in activity for a fifth month running.

Though growth of services activity remains steady, this combined with the further slowdown of manufacturing output, the overall economic growth is losing some steam as export orders are weakening, HSBC chief economist Hongbin Qu said.

"All these call for further easing measures, while inflationary pressures should remain relatively contained in the coming months," the economist said.

The latest survey findings showed average costs faced by service providers rising further, with inflation holding broadly stable. Output price inflation accelerated to the fastest in 25 months.

Recently, notable inconsistency in China PMI data raised doubts regarding the real picture of the economic situation. Unlike the HSBC/Markit survey, the official manufacturing PMI pointed to expansion of the factory sector at the fastest pace in one year in March.

The China Federation of Logistics and Purchasing, which compiles the PMI data on behalf of the National Bureau of Statistics, on Wednesday revised the non-manufacturing PMI to exclude seasonal variations. The seasonally adjusted index showed a reading of 58 in March, up from 57.3 in February. CFLP last month reported the February reading as 48.4.

by RTT Staff Writer

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