PMI falls to lowest for four months
Updated: 2014-01-04 00:25
By CHEN JIA and DU JUAN in Beijing and YU RAN in Shanghai (China Daily)
Service sector figures reflect sagging momentum in economy, economists say
Business activity in the service sector fell to a four-month low in December, with most industries striving to find new growth engines amid slowed exports.
China's non-manufacturing Purchasing Managers' Index, a key measure of activity in the sector, fell to 54.6 in December from 56 in November, 56.3 in October and 55.4 in September.
The figures were announced on Friday by the National Bureau of Statistics and the China Federation of Logistics and Purchasing.
The non-manufacturing PMI also reflects sagging momentum in the economy, with a decline in credit supply in 2013, economists said.
On Wednesday, the government reported that manufacturers' activities also weakened in December, suggested by a PMI reading of 51, the lowest since August, and down from 51.4 in November.
Wu Wei, an analyst at the federation, said weak export growth in 2013 may lead to macroeconomic policy this year focusing more on tapping the potential for domestic demand.
He said the service sector will become the main force driving domestic consumer demand, and will play an important role in supporting overall growth.
Liu Yunfeng, marketing manager of Shanghai Old-Town Temple Restaurant (Group), said he is expecting a sales increase as the company looks to an influx of tourists from the end of 2013 to the Spring Festival holiday.
He hopes to attract more young people, who usually spend more than their parents.
In contrast, Chang Jian, chief economist in China at Barclays Capital, said manufacturers may become more cautious in coming months — given softening demand — in order to reduce inventory and review their opportunities.
Chang said raised interest rates across the money, bond and credit markets have led to higher costs, affecting corporate sentiment and weighing on economic growth.
He also expects the central bank to maintain its tightening bias in monetary policy stance, and says fiscal policy could remain prudent throughout 2014.
A separate manufacturing PMI from British bank HSBC, which concentrates on smaller manufacturers, also indicates a slight decline in exports, with new orders rising at a fractionally slower pace.
The HSBC PMI fell to 50.5 in December from 50.8 in November.
Qu Hongbin, chief economist in China at HSBC, said, “The moderation of December's HSBC manufacturing PMI was mainly due to slower output growth.”
He expects the current monetary and fiscal policy to remain in place to support growth.
A report from Platts, an international commodities information provider, said China's oil demand fell by 2.1 percent year-on-year in November to an average of 9.9 million barrels a day, because of weaker industrial production.
It was the second time last year that the country's oil demand declined, following a 2.3 percent year-on-year drop in September.
Song Yenling, senior analyst at Platts, said, “The negative growth in November reflected still-subdued economic activity in China, particularly as industrial production in the country showed slower growth.”
The country's top leaders have confirmed that policy in 2014 is to stabilize growth to ensure sufficient employment opportunities, and to further rebalance the economy through full-scale reforms.
Zhu Haibin, chief economist in China at JPMorgan, said the government will have to re-emphasize consumption.
The dampening effect from the anti-corruption campaign aimed at high-end consumer spending has been played out fully and will not lead to further surprises, Zhu said.
The authorities may continue to moderate growth momentum from January to March, especially to slow fixed-asset and industrial investment and also GDP growth in 2014 to 7.4 percent from a prediction of 7.6 percent for 2013, Zhu said.
Zhang Zhiwei, chief China economist at Nomura Securities, predicts that GDP growth in the first quarter may slow to 7.5 percent.
The government's concern over taming local government debt and controlling rising property prices, as well as raised interest rates, may moderate growth expectations and bring more downside risks, Zhang said.
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