China's service sector grew only marginally in May, adding to concerns that the prospects of an economic recovery still remained bleak after a gauge of manufacturing sector performance showed contraction in activity for the first time since October 2012.
A survey by Markit Economics and HSBC showed Wednesday that the headline business activity index, a gauge of the industry's performance, edged up to 51.2 from 51.1 in April. Readings above 50 indicate expansion of the sector.
New orders increased modestly from the previous month. There was also a slight increase in staff levels at service providers.
The composite output index that measures activity at both manufacturing and service sector firms, fell to 50.9 from 51.1 in April, suggesting near-stagnation in private sector output. Also, the index was at its weakest level since last October.
Total new orders were relatively unchanged in May at the composite level, with the constituent sectors showing differing trends.
"Service sector activities stabilized in May at a relatively low level of growth," said Hongbin Qu, chief economist, China & Co-Head of Asian Economic Research at HSBC. "A soft patch in manufacturing growth continues to weigh on this industry and adds more downside risks to China's growth rate in 2Q."
"That said, the improving property market and Beijing's renewed effort on expanding VAT tax reform nationwide could lend some support for the service sector's future development," Hongbin added.
An official survey of China's non-manufacturing sector, conducted by the China Federation of Logistics and Purchasing and the National Bureau of Statistics showed that growth moderated further during May.
The International Monetary Fund last week downgraded its 2013 growth estimate for China to 7.75 percent and warned the nation to respond to the challenges especially in the area of social financing and reduce high dependence on investment.
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