China Service Industries Expand at Slower Pace: Survey

China’s service industries expanded at a slower pace last month, adding to the drag on growth in the world’s second-biggest economy after manufacturing lost momentum.

The non-manufacturing Purchasing Managers’ Index fell to 54.5 from 55.6 in March, the National Bureau of Statistics and China Federation of Logistics and Purchasing said in a statement today in Beijing. Readings above 50 indicate expansion.

A deceleration in service industries may fuel concern that China’s economic slowdown will extend into a second quarter after two manufacturing indexes declined. Risks that include surging credit, overcapacity and an overheating property market may limit the government’s room to stimulate growth.

“The PMI adds to downside risks for China and the region,” said Dariusz Kowalczyk, senior economist and strategist at Credit Agricole CIB in Hong Kong. “The reading suggests that growth momentum will remain relatively soft” in the second quarter, and that the economy “has shifted to a weaker growth trajectory,” he said.

The report “adds to the case for policy stimulus, and we expect the government to orchestrate more investment,” which will boost growth beginning in the third quarter, Kowalczyk said. Weaker momentum in the economy adds to chances that the government will set a 2014 expansion goal of 7 percent, down from this year’s 7.5 percent, he said.

Robust Production

Cai Jin, a vice president at the Beijing-based federation, gave a more-upbeat view, saying in a statement that strength in construction and logistics points to “robust production activity in the future.”

“Price pressures have eased, which will help improve quality and efficiency in economic development,” Cai said.

The MSCI Asia Pacific Index of stocks rose 0.2 percent at 10:17 a.m. in Tokyo. China weakened the yuan reference rate by 0.11 percent, the most since April 18, to 6.2152 per dollar.

China’s economy expanded 7.7 percent in the first quarter from a year earlier, trailing analysts’ forecasts and slipping from a 7.9 percent pace in the previous period that was the first acceleration in two years.

The federation’s April manufacturing Purchasing Managers’ Index released this week and a separate gauge from HSBC Holdings Plc and Markit Economics both fell from March, as export orders contracted.

Survey Sample

The logistics federation’s non-manufacturing index is based on responses from purchasing managers at 1,200 companies in 27 industry groups including catering, retailing, construction and transportation. A new seasonally adjusted series began in March 2012 and the data were revised back to March 2011. HSBC’s index will be released on May 6. The gauge rose to 54.3 in March, the highest reading since September.

Service industries are becoming a bigger part of the economy, supporting the government’s efforts to shift the focus of growth away from investment and exports. Their contribution to gross domestic product in the first quarter exceeded that of manufacturing for the first time, the central bank said in a statement last month.

Ikea Group, the world’s biggest home-furnishings retailer, plans to increase the number of outlets fourfold in China as the nation is set to become the company’s second-largest market. It will boost stores to 40 from 11 now by about 2020, Chief Executive Officer Mikael Ohlsson said April 2 in Shanghai.

Service industries accounted for 45 percent of GDP 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. In the U.S., services comprise about 90 percent of the economy.

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