China Services Gauge Joins Manufacturing in Slowing Down

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A gauge of China’s services industry fell to a nine-month low in October, joining manufacturing in signaling a broadening economic slowdown.

The government’s non-manufacturing Purchasing Managers’ Index fell to 53.8 last month from 54 in September. The official manufacturing PMI released Nov. 1 was at 50.8 in October compared with September’s 51.1. Readings above 50 for both measures indicate expansion.

The pullback in services and manufacturing will test the government’s determination to refrain from increased stimulus as the world’s second-largest economy heads toward the slowest full-year growth since 1990. The economy expanded 7.3 percent in the third quarter, the weakest pace in more than five years.

“The momentum looks weak,” said Hua Changchun, a China economist at Nomura Holdings Inc. in Hong Kong. The effectiveness of the government’s targeted measures to boost the economy has waned, Hua said.

The non-manufacturing PMI report showed a measure of expectations dropped 1 point from a month earlier, while readings of new orders, input prices and prices charged all increased from September, the report showed.

Both PMI gauges are released by the National Bureau of Statistics and China Federation of Logistics and Purchasing in Beijing.

A separate PMI index from HSBC Holdings Plc and Markit Economics for October was at 50.4, unchanged from the preliminary figure and up from September’s final reading of 50.2. Higher new-export business was attributed to stronger demand from customers across key export markets, suggesting robust external demand is helping underpin the economy.

Economic Headwinds

The official PMI report released Nov. 1 showed growth slowed from September for output, new orders, new export orders, stockpiles and expectations. The economy “still faces some headwinds” although a downward trend is unlikely after the government implemented policies to stabilize growth in the third quarter, the statement said.

“The biggest drivers of growth such as fixed-asset investment are still slowing,” Shen Jianguang, chief Asia economist at Mizuho Securities Asia Ltd., said after the official manufacturing PMI. “Heavy industries like steel and coal are contracting on lower prices, and the negative impact of the weak property market is becoming more pronounced.”

China will “stabilize” property-related consumption and make it easier for people to access mandatory housing savings, according to a government statement citing a State Council meeting chaired by Premier Li Keqiang. This came after the central bank on Sept. 30 relaxed mortgage rules for homebuyers who have paid off existing loans.

China will support consumption in six areas, including property, e-commerce, environment-friendly products and tourism, according to the statement.