China HSBC services PMI rises to four-month high

BEIJING Tue Feb 5, 2013 7:25am IST

Employees work at a shoe factory in Dongkou county, Hunan province April 5, 2012. REUTERS/China Daily/Files

Employees work at a shoe factory in Dongkou county, Hunan province April 5, 2012.

Credit: Reuters/China Daily/Files

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BEIJING (Reuters) - Growth in China's services sector hit a four-month high in January, a private survey showed, as a better business climate increased deal-making and lifted corporate confidence to an eight-month peak.

The HSBC services purchasing managers' index (PMI) rose to 54 in January, up from December's 51.7, moving more comfortably into territory above the 50-point threshold that separates accelerating from slowing growth.

The survey's findings added to evidence that the world's second-biggest economy is gradually rebounding, with analysts expecting China's economic growth to inch up to 8.1 percent this year, off a 13-year low of 7.8 percent hit in 2012.

Encouragingly, the survey showed service sector firms thought good times could last.

The business expectation index -- one of many accompanying sub-indices that do not contribute to the overall PMI business activity reading for the services sector -- rose to its highest since May 2012 at 64.4.

Nearly a third of the firms polled said they expect business to expand in a year.

"China's growth recovery is now on a firmer footing," said Qu Hongbin, a HSBC economist. "Solid job gains plus higher business expectations bode well for further improvement of the services sector's growth."

The services sector made up 46 percent of China's gross domestic product in 2012, as big as the manufacturing industry and a long way from its 17 percent contribution in 1990.

Tuesday's PMI, the last of five from China in any month, is in line with other surveys released last week that showed a stabilising Chinese economy poised for a modest recovery.

PMIs for China's giant manufacturing sector showed factories enjoyed a mild recovery last month though tepid foreign demand was crimping growth.

In contrast, PMIs for China's services sector showed firms are enjoying much stronger growth than manufacturers.

An official services PMI compiled by China's government and released over the weekend edged up to 56.2 in January, barely up from December's 56.1.

MORE BUSINESS, MORE JOBS

So optimistic are services companies with regards to China's economic pick-up that they hired more workers again in January to extend a four-year run, HSBC said.

The bank said 18 percent of companies reported they did more business in January compared to the previous month due to rising new orders and projects, while 17 percent of firms reported an increase in new business.

Services firms overtook manufacturers to be the biggest employer in China for the first time ever in 2011, accounting for 35 percent of all jobs. Manufacturing jobs in turn accounted for 30 percent of total employment.

Chinese services firms have survived the global financial crisis much better than factories, partly because they do not rely on exports for growth unlike manufacturers.

China's exporters took a beating in the latest global economic slowdown as belt-tightening by U.S. and European shoppers has sapped demand for Chinese goods. As a result, net exports have dragged on China's economic growth in the last two years.

Chinese services firms, on the other hand, cater to the more resilient domestic market that is supported by stubbornly strong house prices.

(Reporting by Koh Gui Qing; Editing by Simon Cameron-Moore)

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