BEIJING, April 6 (Reuters) - Activity in China’s service sector expanded at its weakest pace in six months in March, hurt by slower growth in new orders and intensifying cost pressures, a private survey showed, painting a less rosy picture of a sector that Beijing is counting on to maintain economic momentum.
The Caixin/Markit services purchasing managers’ index (PMI) for March fell to 52.2 from February’s 52.6, but remained above the 50-level that separates expansion from contraction.
The survey of largely medium- and small-sized firms showed activity at its lowest since September 2016.
The result contrasted with official surveys showing services PMI growth for March accelerating at the fastest pace in almost three years, and manufacturing activity unexpectedly expanding at the quickest rate in nearly 5 years last month.
In Thursday’s private services survey subdued business demand pulled down the headline PMI index. There are concerns China’s real estate sector - a big growth-driver for sectors from construction to banking - could become a drag on the broader economy as they were hit with fresh waves of housing policy curbs in mid-March.
The new business sub-component slipped 1.1 percentage points to 52.2 in March, the weakest demand for China’s service providers since September 2016.
“Weaker increases in new business have clouded the economic outlook, and investors should watch closely for signs of a turning point in the second quarter,” Zhengsheng Zhong, Director of Macroeconomic Analysis at CEBM Group said in a note.
Lukewarm growth may also suggest consumers in the world’s second-largest economy are cutting back on spending, highlighted by disappointing revenue reports at some of the nation’s top consumer firms.
Retail sales growth was well below expectations in the first two months of the year as auto sales dipped.
Cost pressures also rose sharply as input prices soared to their highest point in more than four years, although firms were able to pass on part of the costs to customers with a modest increase in prices charged.
A number of companies linked rising cost to higher salary payments, the survey said.
While the overall readings in the private survey were far from alarming, the underlying results backed analysts’ cautious view on the outlook for the economy.
In particular, economists believe the construction rally, largely driven by a furious property boom since last year, may have peaked. Indeed, official data on Friday showed new construction orders dropped to the lowest since August 2016.
On top of the stepped-up curbs on the property sector, Beijing has also started to tighten policy settings to temper risks from a rapid build-up in debt.
Caixin’s composite manufacturing and services PMI, also released on Thursday, reinforced the patchy growth underpinned by weaker demand in March, with the index falling to 52.1 from the previous month’s 52.6.
“The Chinese economy continued to expand in March, but growth in both manufacturing and services slowed,” CEBM Group’s Zhong said, referring to the private survey.
Both the Caixin services and composite readings showed service providers and manufacturers continued to add jobs last month, but the pace was moderating.
Reporting by Yawen Chen and Nicholas Heath
Editing by Shri Navaratnam;
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