China Services Growth Picks Up in Sign Economy Stabilizing

China’s service industries showed the first pick-up in growth since March, adding to signs the world’s second-largest economy may be stabilizing after a two-quarter slowdown.

The non-manufacturing Purchasing Managers’ Index rose to 54.1 in July from 53.9 in June, the Beijing-based National Bureau of Statistics and China Federation of Logistics and Purchasing said yesterday. An official gauge of manufacturing released Aug. 1 showed an unexpected expansion.

Faster growth in non-manufacturing industries may bolster Premier Li Keqiang’s confidence that China can achieve its 2013 target for expansion in gross domestic product amid a campaign to rein in financial risks and control local government debt. State Council measures to help small businesses and the overhaul of the value-added tax system will provide more support for services companies, according to Barclays Plc and Reorient Financial Markets Ltd.

“The services sector PMI has been doing much better than manufacturing for some time and the corporate expectations index was at its highest this year, which shows confidence is returning,” said Steve Wang, Reorient’s Hong Kong-based chief China economist. “The PMI is supposed to be a leading indicator so we are witnessing a stabilization and a sign the economy isn’t slowing down at a faster rate.”

Longest Streak

China’s economy grew 7.5 percent from a year earlier in the April-June period, slowing for a second straight quarter and extending the longest streak of sub-8 percent expansion in at least two decades. Wang says he sees second-half growth of 7.6 percent, the same as the pace in the first six months.

The government set a 2013 expansion target of 7.5 percent after gross domestic product rose 7.8 percent last year, the least since 1999. Policy makers have this year rolled out targeted measures to support the economy, including boosting infrastructure, cutting taxes and helping small companies, amid signs growth may slow too far below the state’s goal.

The National Development and Reform Commission said today that demand from the transport industry will show stable growth as key projects proceed. Ten new infrastructure projects may begin in the second half of the year and construction work for Beijing’s new airport may start early, it said in a statement on its website.

Good Start

The non-manufacturing PMI hasn’t dropped below 50, the dividing line between expansion and contraction, since a new data series started in March 2011, and a services gauge from HSBC Holdings Plc and Markit Economics has shown expansion for at least four years. An index of business expectations in yesterday’s report rose to 63.9 from 61.8 in June, the highest since December.

The July readings indicate a “relatively good start to second-half economic activities,” Cai Jin, a vice chairman at the logistics federation, said in a statement. “The foundation and conditions to ensure stable economic growth are there even though we continue to face challenges.”

HSBC and Markit Economics will release their services Purchasing Managers’ Index for China tomorrow.

Stocks in China rose for a second week, after the NBS’s official manufacturing PMI survey unexpectedly strengthened and the government pledged to prevent economic growth from slipping below a “reasonable” level. The Shanghai Composite Index rose 0.9 percent last week, paring its annual loss to 11 percent.

Brighter Spot

The PMI rose to 50.3 for July from 50.1 for June, an Aug. 1 report showed, compared with the median estimate in a Bloomberg News survey for 49.8. A separate gauge released the same day by HSBC and Markit Economics fell to 47.7, an 11-month low and the third straight month of below-50 readings. Both surveys showed businesses cutting workers and weakness in export orders.

“In contrast to disappointing industrial performance, service sector development has been a brighter spot” this year, Chang Jian, a Hong Kong-based economist at Barclays, said before the data release. “Service industries have seen faster growth in value-added output, fixed-asset investment and foreign investment.”

Investment in services rose 23.5 percent in the first half of this year, outpacing the 15.6 percent growth in manufacturing spending, and its value-added output also rose faster, she said.

Employment Gains

The American depository receipts of Nasdaq-listed International Ltd. rose 19.5 percent on Aug. 1 after the Shanghai-based online travel company unexpectedly reported a 76 percent jump in second-quarter net income from a year earlier on higher hotel reservations and air-ticket sales.

While the employment index in the July official manufacturing PMI had a below-50 reading for a 14th month, the gauge in yesterday’s report showed expansion, with a figure of 51.3, down from June’s reading of 51.5.

“Jobs aren’t being created in manufacturing, it’s services where all the growth is going to come from, especially sectors like e-commerce, with companies like Alibaba,” Reorient’s Wang said, referring to China’s biggest e-commerce company that runs online shopping platform Taobao Marketplace.

Industries including leisure, e-commerce and transport 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 GDP in the first quarter exceeded that of manufacturing for the first time, the central bank said in April.

Boosting Share

Service industries accounted for about 45 percent of GDP last year, according to statistics bureau data, up from 41 percent in 2003. The government is seeking to increase the share to 47 percent by 2015, according to its five-year plan. In the U.S., services comprise about 90 percent of the economy.

The official non-manufacturing survey 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 rose to 51.3 in June from 51.2 in May.

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