China's Jan services growth slowest in 2.5 years: PMI

Retreats to 50.7 as firms secure smaller volume of new business

China's services sector grew at its slowest pace in almost 2-1/2 years in January after firms secured a smaller volume of new business, a private survey showed, adding to growing signs of slackening in the Chinese economy.

The HSBC/Markit Services Purchasing Managers' Index (PMI) retreated to 50.7 in January, a low last seen in August 2011 though still above the 50-point level that demarcates growth and contraction. December's PMI was 50.9.

The index is the last of China's four monthly PMI releases, which all showed growth in the world's second-largest economy moderating in January on softer local and foreign demand.

Friday's PMI showed new business growth hit a seven-month low in January, an outcome that may prolong a debate among economists on whether the weak demand last month was mostly caused by the January 31 start of Lunar New Year holidays, as many firms closed shop early for celebrations.

Qu Hongbin, an HSBC economist, said slower growth in the services sector stemmed from a cooldown among China's factories and the country's efforts to curb extravagant state spending.

"We expect services growth to bounce back a little in the coming months," Qu said, but noted that a marked improvement depends on stronger manufacturing growth and the government's efforts to expand the services sector through reforms.

A similar services PMI released by the China's statistics authority earlier this week showed growth in the sector sagged to a five-year trough in January as business confidence retreated to four-year lows.

Two separate PMIs for China's factories also showed manufacturing growth slipping to six-month lows in January.

Analysts polled by Reuters believe China's economy will grow 7.4% this year, far ahead of other major economies but still its worst performance in 24 years.

For 2013, China reported growth of 7.7%.

Fears of a sharper than expected loss of momentum in China were believed to be a contributing factor in a global financial market selloff in late January, with emerging markets hit particularly hard.

Some economists say a further cooldown will be inevitable this year as officials hunker down for difficult reforms.