BEIJING (Reuters) - China’s fast-growing services sector expanded again in March as business confidence hit an 11-month high, a private sector survey of firms said on Thursday.
The seasonally adjusted HSBC Services Purchasing Managers Index (PMI) stood at 53.3 in March, down slightly from February’s 53.9, but signalling healthy growth with the new business sub-index extending an unbroken run of expansion to 40 months.
Still, activity below the index’s long-term average implies that pro-growth policy support remains needed.
The upbeat survey echoes China’s official non-manufacturing PMI which delivered a reading of 58 for March when it was published on Tuesday with a revised methodology that saw February’s index revised up to 57.3 from 48.4 under the old calculation.
A PMI reading below 50 indicates contracting activity while a reading above 50 shows expansion.
The HSBC Services PMI, compiled by UK-based data provider Markit, registered firmer client demand and anecdotal improvement in overall business conditions with service providers able to pass on higher input costs to customers via increased output charges.
But while headline readings in the main index and various component parts of the survey showed steady growth, the data came laced with caveats about underperformance versus trend growth rates and that jobs growth in the sector was the weakest in the current period of expansion.
Qu Hongbin, HSBC’s Hong Kong-based chief economist for China, said that overall economic growth appeared to be losing some steam -- whether in export orders, industrial production or employment.
“All these call for further easing measures, while inflationary pressures should remain relatively contained in the coming months,” Qu said in a statement accompanying the index.
While Qu urged caution in his analysis of the survey’s findings, respondents to the PMI were clearly upbeat on the outlook for business over the coming 12 months, citing plans for expanding their companies and reflecting the view that growth in the broad economy in China would accelerate.
Almost one-fifth of survey respondents said business had increased from a month earlier, versus just 9 percent who indicated a reduction, with the new business index reflecting an improvement in market conditions.
China’s government has had economic policy settings on a pro-growth path since announcing a programme of “fine-tuning” in the autumn of 2011.
It has delivered a series of tax breaks and two 50 basis point cuts to the proportion of deposits banks must keep as reserves to keep money supply growth steady as global economic headwinds have hampered the inflows of foreign capital that have fuelled China’s economy most of the last decade.
China’s growth has slowed for four successive quarters and economists forecast the rate of expansion to have cooled to just above 8 percent in the first three months of 2012, putting the country on track for its slowest full year of growth in at least a decade.
That policy easing appears to be gaining some traction in China’s vast export-oriented manufacturing sector, stymied in the second half of 2011 by slack demand in its two biggest trading partners -- the European Union and the United States.
At the very least, investors are gaining in confidence that policymakers are doing enough to avoid a hard landing in the world’s No 2 economy and will continue to pull all levers necessary to ensure that remains the case.
China’s big factories were surprisingly busy in March as a stream of new orders lifted activity to an 11-month high, but credit-constrained smaller manufacturers struggled, suggesting that the economy is still losing steam.
The pickup in production at large factories was attributed to an expected bump as winter ends, and economists cautioned not to read too much into the stronger-than-expected figure.
That left intact a view that China’s economy, while not crashing, likely suffered its worst quarter in three years between January and March, and requires at least some monetary policy easing this year to ensure the cooldown stays mild.
A Reuters poll in March showed analysts expect China’s central bank to lower the ratio of cash banks must hold as reserves by another 150 basis points this year.
Editing by Ken Wills and Richard Borsuk