China December Caixin services PMI falls to 17-month low as new business cools

BEIJING (REUTERS) - Activity in China's services sector expanded at its slowest rate in 17 months in December, a private survey showed on Wednesday (Jan 6), in a further indication that the world's second-largest economy may be losing steam.

Policymakers and economists have hoped Beijing's push to restructure the economy with a greater emphasis on services and consumption would more than offset the economic drag from persistent factory weakness, but the survey's findings did not bolster that view.

The Caixin/Markit Purchasing Managers' Index(PMI) fell to 50.2 in December from 51.2 in November.

The reading was the lowest since July 2014 and the second lowest since data collection began in late 2005. "In light of the setback to services sector growth, the government needs to gradually relax restrictions in the sector," said He Fan, chief economist at Caixin Insight Group.

A reading above 50 points indicates growth on a monthly basis, while one below that points to a contraction.

A sub-index measuring new business fell to 50.6 in December from November's 51.1, as firms reported relatively subdued demand, though service companies added workers at a slightly faster clip.

Their overall costs continued to rise, largely due to higher salaries, but increased competition meant they had to cut selling prices for the fourth month running.

China's services sector has been one of the few bright spots in the economy over the last year, helping to offset a prolonged slump in manufacturing, and the government has been keen to promote higher consumption to replace flagging old growth drivers such as heavy industry and exports.

The results of the private survey contrast with an upbeat official services survey on Friday which showed activity picked up in December to a 16-month high of 54.4.

The official survey focuses more on larger firms, while the private survey tends to look at smaller ones which are showing more financial strains from the prolonged economic slowdown.

Indeed, a composite Caixin output index covering both manufacturing and services suggested the downdraft from factory weakness was still somewhat stronger than the contribution from services. The index shrank for the fourth time in five months in December, albeit marginally.

China is set to release fourth quarter and full-year GDP data on Jan.19.

China's economic growth is expected to cool from 7.3 per cent in 2014 to 6.9 per cent in 2015, the central bank said in a recent work paper, its slowest pace in 25 years.

Some China watchers, however, believe real growth is already much weaker than official data suggest.