China's Services Sector Slumps

Manufacturing in China expanded at its slowest pace in five months

Photograph by Nelson Ching/Bloomberg

In another sign that China’s economy is downshifting, an index released on Monday showed China’s service sector growth slowing in October to a nine-month low. The bad news followed Saturday’s poor showing for manufacturing, which grew at its slowest pace in five months.

The service reading, issued by the National Bureau of Statistics and China Federation of Logistics and Purchasing in Beijing, fell to 53.8, from 54 in September. Manufacturing came in at 50.8, down from 51.1 the month before. (Above 50 shows expansion.) The economy “still faces some headwinds,” Beijing said in a statement on Saturday.

In October, China’s statistics bureau announced that gross domestic product grew 7.3 percent in the third quarter, its slowest pace since the global financial crisis. “The momentum looks weak,” warned Hua Changchun, a China economist at Nomura Holdings in Hong Kong, reported Bloomberg News on Nov. 3.

While sub-readings for new orders and input prices in services both rose over the previous month, expectations fell by 1 percentage point, to 59.9. Those measures were all still in expansionary ranges, however. That was not the case for employment in services, which contracted for a fourth month, to 48.9, in October, from 49.5 in September. The employment reading in manufacturing also contracted.

“The biggest drivers of growth, such as fixed-asset investment, are still slowing,” Shen Jianguang, chief Asia economist at Mizuho Securities Asia, told Bloomberg News. “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’s service sector has been growing in recent years and in 2013 accounted for 46.1 percent of the economy, for the first time exceeding manufacturing and agriculture to make up the biggest portion. It is also attracting interest from overseas; foreign investment into services that include finance, health care, and logistics grew 14.15 percent, to $61.45 billion last year. Investment in manufacturing, in contrast, fell by 6.78 percent, to $45.56 billion, in 2013, according to China’s commerce ministry.

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