China Feb HSBC services PMI falls from 4-month highs

Falls to 52.1 after new business recedes from eight-month highs, suggests a modest rebound

China's services sector cooled in February after new business receded from eight-month highs, a private survey showed on Tuesday, in line with slower factory activity that suggests a modest rebound in the world's second-biggest economy this year.

The HSBC Services Purchasing Managers' Index (PMI) fell to 52.1 from January's 54.0, after seasonal adjustments, but still held above 50 to show the increasingly important services sector was growing on a monthly basis.

Qu Hongbin, HSBC's chief China economist, attributed the pull-back in services growth in part to a clampdown on wasteful state spending by Beijing, such as forbidding officials from hosting extravagant meals.

He said distortions from the Lunar New Year holiday, which fell in February this year as opposed to January in 2012, may also have contributed to swings in the PMI data even though the series is seasonally adjusted.

"We expect a continuous modest improvement of service sector growth in coming months, thanks to healthy labour market conditions and the ongoing recovery of manufacturing growth," he said.

The services sector accounted for 46% of China's gross domestic product in 2012, as big as the country's better-known manufacturing industry and nearly three times its 17% contribution in 1990.

The HSBC Services PMI reinforces the message from separate services and manufacturing PMIs that suggest a recovery in the world's second-largest economy paused in February on unsteady foreign and local demand.

An official survey from the National Bureau of Statistics on Sunday showed China's non-manufacturing PMI fell to a five-month low of 54.5 in February, from January's 56.2.

That followed a pair of manufacturing PMIs last week that showed factory growth eased to multi-month lows in February as domestic demand dipped, weighing on firms already fighting slack foreign sales.

Still upbeat

The HSBC survey showed while the new business sub-index dropped to a three-month low of 52.2, companies stayed optimistic -- nearly a third of 400 firms surveyed said they expect business to improve in a year's time.

The optimism was underscored by rising employment in the services sector. Companies hired more workers in February, extending an uninterrupted, four-year trend, although the rate of increase eased.

Input prices were stubbornly buoyant, climbing for the 40th month in a row to stand comfortably above 50 as firms cited higher purchasing prices, HSBC said.

But companies did not pass on the bulk of their higher operating costs, perhaps owing to intense competition, with prices charged rising only a whisker above 50.

The world's fastest-growing major economy was trapped in its worst downturn in 13 years last year, growing 7.8%. A Reuters poll showed analysts expect growth to pick up to 8.1% this year on higher state spending and resilient domestic consumption.