China's Services Industry Grows at Slower Pace as Inflation Erodes Margins

China’s non-manufacturing purchasing managers’ index fell to a nine-month low in November as accelerating inflation eroded service companies’ margins.

The index dropped to 53.2 from 60.5 in October, according to a statement today by the Beijing-based National Bureau of Statistics and the Federation of Logistics and Purchasing. A reading above 50 indicates an expansion. A separate service PMI released by HSBC Holdings Plc fell to 53.1, a near two-year low.

Policy makers have raised benchmark interest rates and banks’ reserve ratios, and threatened to impose price controls, in a drive to rein in inflation that reached a two-year high in October. Higher prices may challenge the government’s plan to boost consumption, with a consumer confidence index last month showing the first drop in six quarters because of rising costs.

“Inflationary pressure has started to show a negative impact on service expansion,” the logistics federation said in today’s statement. Faster gains in an input-price index than a charged-price index indicated rising costs and narrowing profit margins for service providers, the federation said.

The non-manufacturing measure encompasses business and consumer services as well as construction and real estate. The non-manufacturing new-order index fell to 50.1 last month from 56.3 in October, and new orders in consumer service industries indicated a contraction, with a reading of 47, today’s data show.

The decline in the overall non-manufacturing PMI reflected a “seasonal correction” after holiday spending the previous month, Cai Jin, vice chairman of the logistics federation said in the statement. Consumer spending usually surges during a seven-day holiday in October.

Consumer Sentiment

A Chinese consumer confidence index dropped to 104 in the third quarter from 109 in the previous three months, according to a survey by Nielsen Co. and the Chinese statistics bureau’s Economic Monitoring and Analysis Center released Nov. 17. A total of 76 percent of the 3,500 consumers surveyed expected prices to increase further over the next year.

A business-activity expectation index for the construction industry stood at 60, lower than similar gauges for production services and consumer services. New orders in real estate may remain at “low levels,” today’s statement said. The government has this year raised down-payment ratios and mortgage rates and tightened lending and land rules to crack down on property speculation.

Consumer prices gained 4.4 percent in October from a year earlier as food prices jumped 10 percent, according to statistics bureau data.

--Li Yanping. With assistance from Huang Zhe. Editors: Chris Anstey, Paul Panckhurst.

To contact Bloomberg News staff for this story: Li Yanping in Beijing at +86-10-6649-7568 or yli16@bloomberg.net

To contact the editor responsible for this story: Chris Anstey at canstey@bloomberg.net

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