China Services Growth Slows Even as New Business Picks Up

China’s services industries’ growth slowed in December, a private survey showed, even as a pickup in new business added to the likelihood that the economy accelerated for the first time in eight quarters.

The services Purchasing Managers’ Index released by HSBC Holdings Plc and Markit Economics today was at 51.7 after 52.1 in November. Companies added workers at the fastest pace in more than two years and were “optimistic” business would improve, HSBC said in a statement.

“Despite the moderation of December’s headline services PMI, the underlying strength of services sectors improved in terms of stronger new business flows and employment growth,” Qu Hongbin, chief China economist at HSBC in Hong Kong, said in the statement. “This, plus the further pickup of manufacturing growth, suggests that China is on track” to report fourth-quarter economic growth of about 8 percent, he said.

China’s new leadership, headed by Xi Jinping, is targeting “sustained and healthy development” of an economy that may have expanded last year at the weakest rate since 1999. The government cut taxes for smaller companies and low-income households, accelerated investment approvals and boosted infrastructure spending to support growth amid a slump in exports.

The benchmark Shanghai Composite Index rose 0.6 percent as of 2:11 p.m. local time after advancing as much as 1.2 percent. The gauge had gained 16 percent through Dec. 31 since falling to a 2012 low on Dec. 3. Chinese stock markets were closed Jan. 1-3 for the New Year holiday.

Mixed Picture

Services industries, which include retailing, telecommunications and transportation, account for about 43 percent of the economy compared with about 90 percent in the U.S. Under China’s current five-year plan, the government is seeking to raise that share to 47 percent by 2015.

Purchasing managers’ indexes for China have given a mixed picture of the strength of the economic rebound.

Today’s report contrasts with the non-manufacturing PMI released yesterday by the National Bureau of Statistics and China Federation of Logistics and Purchasing, which rose to the highest level in four months.

HSBC’s manufacturing PMI released Dec. 31 showed the fastest expansion in 19 months in December, while the federation’s gauge released the next day was unchanged from the previous month at 50.6.

Today’s report “is negative for sentiment, but we don’t see a big market impact given that yesterday’s official survey showed a bigger gain,” said Dariusz Kowalczyk, senior economist at Credit Agricole CIB in Hong Kong. “The overall subdued pace of recovery highlights challenges to growth.”

Before it's here, it's on the Bloomberg Terminal.