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Business activity at a 9-month low as nation's recovery falters

By Wang Yanlin (Shanghai Daily)

09:25, July 04, 2013

China's service activity moderated to a nine-month low last month, further evidence of a faltering recovery in the world's second-largest economy.

The official non-manufacturing Business Activity Index, a comprehensive gauge of the vitality of the service industry which is weighted toward state-owned enterprises, lost 0.4 points from a month earlier to 53.9 in June, the China Federation of Logistics and Purchasing said yesterday.

A reading above 50 means expansion but June's index was the lowest since September last year.

The component indexes showed that new orders increased 0.2 points to 50.3, but prices lost 0.1 points to 50.6 and business expectation retreated 1.1 points to 61.8.

Meanwhile, the HSBC China Services Business Activity Index, slanted toward private and export-oriented service companies, posted 51.3 in June, up fractionally from May's 51.2.

Growth in new business eased for a third month and was the lowest in the survey's five-year history although it still pointed to expansion, HSBC said.

The rate of job creation accelerated at a modest pace, with around 8 percent of respondents saying they had hired additional staff in June.

Qu Hongbin, chief economist for China at HSBC, said the underlying growth momentum in the service sector is likely to soften.

"With sluggish growth of new orders, employment growth will be under pressure. As China's value-added tax reforms may take time to filter through, we expect slower growth in the service sector in the coming months."

Weakening growth in the service sector was just the latest sign of a faltering economic recovery.

The official Purchasing Managers' Index, a measure of operating conditions in the manufacturing sector, retreated to a four-month low of 50.1 in June.

The HSBC Purchasing Managers' Index settled at 48.2 last month, indicating contraction for private and export-oriented manufacturing firms.

Chang Jian, a Barclays economist, said they are signs that China's leaders are more concerned about quality of growth, rather than quantity.

But Zhou Hao, an economist at Australia and New Zealand Banking Group Ltd, said they reflect a fragile recovery which requires policy changes to stabilize a "fast decelerating economy."

"We reiterate our call for the central bank to cut the interest rates by 25 basic points," Zhou said, reasoning that a rate cut would help lower interbank rates and provide relief to industrial sectors affected by rising production costs and a strong currency.

China's gross domestic product expanded 7.7 percent in the first three months, slowing from 7.9 percent in 2012's final quarter and falling short of expectations of a mild economic recovery.

In May, the International Monetary Fund lowered its projection of China's economic growth for this year to 7.75 percent from 8 percent.

The weaker growth has triggered calls for restrictive policies to be lifted, especially in recent months as inflation eased.

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