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China Services Gauges Rebound in Signal of Rebalancing

China’s Service Industries
People shop inside a mall in the pedestrianized Dongmen area of Shenzhen, China. Photographer: Brent Lewin/Bloomberg

China’s service industries strengthened in August, contrasting with declining manufacturing gauges and suggesting a transition away from factory-led growth.

The non-manufacturing Purchasing Managers’ Index advanced to 54.4 from 54.2 in July, the National Bureau of Statistics and China Federation of Logistics and Purchasing said today in Beijing. A separate services gauge from HSBC Holdings Plc and Markit Economics surged to a 17-month high of 54.1, from 50 in July. Readings above 50 for both gauges indicate expansion.

Chinese stocks added to gains on optimism a rebound in services growth will help offset a pullback in manufacturing and a property slump. China’s weakening real-estate market has weighed on related industries, raising concern the government will miss its expansion target of about 7.5 percent this year.

“The economy still faces downside risks to growth in the second half of the year from the property sector slowdown,” Qu Hongbin, HSBC’s chief China economist in Hong Kong, said in a statement. “We think policy makers should use further easing measures to help support the recovery.”

August data point to divergent trends in employment across manufacturing and services, according to a statement from HSBC and Markit.

The MSCI Asia Pacific Index of stocks climbed 0.5 percent at 10:42 a.m. Hong Kong time. The Shanghai Composite Index was up 0.8 percent and Hong Kong’s Hang Seng Index rose 1 percent.

Manufacturing Gauge

The manufacturing PMI, also released by NBS and CFLP earlier this week, fell to 51.1 in August from 51.7 in July, missing the 51.2 median estimate of analysts. A separate manufacturing gauge given Sept. 1 from HSBC and Markit was 50.2, also falling from 51.7 in July.

Services accounted for 46.6 percent of gross domestic product in the first half of 2014, 1.3 percentage points higher than the same period a year earlier, the statistics bureau said in July when it released second-quarter GDP data.

The official services PMI rose even as separate indexes for new orders, prices and expectations fell, suggesting that conditions “continue to be on the soft side,” Dariusz Kowalczyk, senior economist at Credit Agricole SA in Hong Kong, said in a note.

The headline number of 54.4 is independent of the readings for measures including orders and prices, according to the logistics federation. That contrasts with the manufacturing PMI, which is a weighted composite of sub-gauges including orders, production and employment.

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