China’s Services Industries Expand as Retailing Aids Recovery

Photographer: Tomohiro Ohsumi/Bloomberg

Workers stand in a suspended platform ready to clean windows at the Shanghai World Financial Center in the Pudong area of Shanghai. China’s economic growth accelerated for the first time in eight quarters in the last three months of 2012, rising 7.9 percent from a year earlier. Close

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Photographer: Tomohiro Ohsumi/Bloomberg

Workers stand in a suspended platform ready to clean windows at the Shanghai World Financial Center in the Pudong area of Shanghai. China’s economic growth accelerated for the first time in eight quarters in the last three months of 2012, rising 7.9 percent from a year earlier.

China’s services industries grew at the fastest pace since August as gains in retailing and construction aid government efforts to drive a recovery in the world’s second-biggest economy.

The non-manufacturing Purchasing Managers’ Index rose to 56.2 in January from 56.1 in December, the Beijing-based National Bureau of Statistics and China Federation of Logistics & Purchasing said in a statement yesterday. A reading above 50 indicates expansion.

The Shanghai Composite Index (SHCOMP) last week posted the biggest weekly gain since October 2011 on optimism that Communist Party leader Xi Jinping can sustain the nation’s expansion and control the risk that inflation will accelerate in the second half. Strength in services may assist a shift to a consumption-driven economy as the government targets more sustainable growth and factory output contributes to record pollution.

“A mild growth rebound appears on track,” said Ding Shuang, senior China economist with Citigroup Inc. in Hong Kong. “With downside risks to growth significantly reduced and inflation expectations rising, policies may shift away from an easing bias to a more neutral position.”

Ding estimates consumer-price gains will pick up to 3.5 percent by the end of the year from 2.5 percent in December while economic expansion in the first half will accelerate to more than 8 percent due to the impact of last year’s government policies to support investment and infrastructure spending.

More Optimistic

The Shanghai Composite Index rose 5.6 percent last week to 2,419.02. The yuan dropped 0.1 percent to 6.2270 per dollar in Shanghai.

China’s economy grew 7.9 percent from a year earlier in the last three months of 2012, the first acceleration in two years. The pace may pick up to 8.1 percent in the first quarter, according to the median estimate in a Bloomberg News survey last month.

The federation’s manufacturing PMI released Feb. 1 showed a fourth month of expansion and a separate gauge from HSBC Holdings Plc and Markit Economics rose to the highest level in two years.

HSBC and Markit will release their services survey tomorrow. The index fell to 51.7 in December, the third straight decline.

Yang Yuanqing, chief executive officer of Lenovo Group Ltd., the world’s second-biggest maker of personal computers, said in a Jan. 30 interview that the economy should improve this year. “Definitely I’m more optimistic on China’s economy, China’s PC market and the smartphone market as well,” Yang said.

’Obvious’ Improvement

The logistics federation’s non-manufacturing index is based on responses from purchasing managers at 1,200 companies in 27 industries including banking, retailing, construction and transport. A new seasonally adjusted series began in March 2012 and the data were revised back to March 2011.

The retailing industry saw an “obvious” improvement in January, according to yesterday’s statement, while new orders in civil engineering and infrastructure construction rose to the highest since March 2012.

At the same time, the restaurant industry suffered from an austerity drive by Communist Party chief Xi that includes a ban on lavish banquets by government departments. The sector’s business activity index fell 17.3 points from the reading in January 2012 and the new orders gauge fell 6.5 points to below 50, the statement showed.

Gauges of activity and new orders for commercial real estate dropped below the 50 level that divides expansion from contraction, indicating the property market is “entering the low season,” Cai Jin, a vice chairman at the logistics federation said in the statement. China will start its weeklong New Year holiday on Feb. 9 when factories, shops and offices shut as hundreds of millions of people return to their hometowns for the festival.

Government Campaign

Data from SouFun Holdings Ltd. released Feb. 1 showed new- home prices in China rose 1 percent in January from the previous month, the most in two years, defying a prolonged government campaign to cool prices that included raising down-payments and mortgage requirements.

An index of intermediate input prices in yesterday’s report rose 4.4 points to a 10-month high of 58.2, a rebound that is “a cause for concern,” Cai said.

Inflation accelerated to 2.5 percent in December, the fastest pace in seven months, while a measure of input prices in the federation’s manufacturing PMI rose to a 17-month high. Premier Wen Jiabao said in comments published Jan. 30 that China can’t underestimate inflation “at any time.”

Inflationary Pressure

“Growth may weaken beyond the first quarter as policy easing runs out of steam, but the government can’t loosen policies further given the inflationary pressure,” said Zhang Zhiwei, chief China economist at Nomura Holdings Inc. in Hong Kong.

He estimates expansion may slow to 7.2 percent in the fourth quarter from 8.2 percent in the first three months, while consumer-price gains will accelerate to more than 3.5 percent in the second half.

The contribution of services to the economy has grown over the past decade as rising incomes have spurred demand for housing, mobile phones and travel. Almost 36 percent of the working population was employed in such industries in 2011, up from 31.3 percent in 2005, government data show.

Services industries accounted for 45 percent of gross domestic product last year, according to the statistics bureau, up from 41 percent in 2003. The government is seeking to increase the share to 47 percent by 2015.

“With the new leaders’ work on urbanization, the service sector could be on a secular strengthening trajectory,” said Huang Yiping, chief Asia economist at Barclays Plc in Hong Kong. “But overall growth should stay close to around 8 percent, which is probably the new normal.”

--Zheng Lifei, Daryl Loo. With assistance from Ed Lococo and Zhou Xin in Beijing. Editors: Nerys Avery, James Mayger

To contact Bloomberg News staff for this story: Zheng Lifei in Beijing at lzheng32@bloomberg.net

To contact the editor responsible for this story: Paul Panckhurst at ppanckhurst@bloomberg.net

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