China services industry picks up ahead of party plenum

Services PMI rises to 52.6 from 52.4 in September

China's services industry picked up in October, a private survey showed on Tuesday, with gains in new business and employment providing further evidence the economy has found its footing as Beijing prepares to lay out its reform agenda for the next decade.

Top leaders have pushed for stability in the economy over fast growth as they look to restructure it away from a credit and investment-driven growth model to one led by consumer demand, with the services sector the main focus.

The HSBC/Markit services PMI rose to 52.6 from September's 52.4, holding well above the 50 line that separates expansion from contraction. New business growth reached a seven-month high and employment rose for the second straight month.

"It has been the priority to develop the service sector" said Kevin Lai, chief regional economist at Daiwa Securities.

"But the progress has been slow, the economy is still very much driven by investment."

China's leaders will lay out their reform plans at the Communist Party's third plenary session from November 9-12. They have made it clear they want to see industries with overcapacity, such as steel and shipbuilding, shrink.

New jobs will need to be found for workers laid off in traditional industries, and so the second consecutive rise in the services PMI employment measure will be welcome. Services accounted for about 45% of the economy in 2012 and the sector is already the biggest employer.

Premier Li Keqiang has said it will be a balancing act to maintain employment amid the restructuring, saying 7.2% growth is needed to ensure a stable job market.

"We want to stabilise economic growth because we need to guarantee employment," Li told workers' union representatives two weeks ago, in remarks that were published in full on Tuesday.

BUSINESS OUTLOOK IMPROVED

The PMI survey showed an improvement in the business outlook for the year ahead, though it was still below trend.

"Service sectors saw modest but broad-based improvement into the fourth quarter," HSBC economist Qu Hongbin said in a note accompanying the data.

"This should help cement China's growth momentum in the coming months."

The overall message tallied with the official services PMI, released on Sunday, which showed the fastest increase in 13 months and a tick up in employment.

But the two surveys differed in their reports for new orders, with the HSBC/Markit survey showing an increase to the highest level since March, while the official survey registered a fall from the previous month.

The official survey is weighted towards bigger and state-owned firms and tends to come in higher than the HSBC/Markit survey, which focuses on smaller and private businesses.

Tuesday's survey followed a pair of PMIs showing activity in the manufacturing sector had also picked up in October.

The official manufacturing PMI increased to 51.4 from 51.1 in September, while the final HSBC/Markit PMI increased to 50.9 from September's 50.2.