China's July services activity quickens to 11-month high

A sales staff attends to a customer trying shoes at a shopping district of Beijing, China on August 3, 2015.
A sales staff attends to a customer trying shoes at a shopping district of Beijing, China on August 3, 2015. PHOTO: EPA

BEIJING (REUTERS) - Activity in China's services sector expanded at its fastest pace in 11 months in July, thanks to stronger new business, a private survey showed on Wednesday, a welcome development at a time factories in the world's second largest economy are struggling.

The services Purchasing Managers' Index (PMI) compiled by Caixin/Markit rose to 53.8 from June's 51.8. The July level is the highest since August 2014 and marks a 12th straight month of expansion.

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 jumped to 54.0 from June's 52.2 while the employment sub-index also edged up, indicating increased hiring on stronger new businesses.

Both input prices and selling prices increased in July, indicating a slight pick-up in inflationary pressure.

The Caixin PMI report did not specify if there was an impact on the services sector from the crash in the country's stock markets from mid-June. A sharp rally early in the year had boosted performance for banks and brokerages, and gave a much needed lift to the cooling economy.

The official services PMI released on Saturday showed that activity quickened slightly in July from the previous month.

The relatively resilient services sector could help offset some downward pressure on the economy as the manufacturing sector struggles to cope with weaker demand at home and abroad.

The final Caixin/Markit factory survey showed activity contracted the most in two years in July while the official PMI showed manufacturing growth unexpectedly stalled.

The official surveys focus on large, state-owned firms, while the private ones measure activity across small to medium-sized firms, which are facing tougher financial and operating conditions.

The services sector has accounted for the bigger part of China's economic output for at least two years, with its share rising to 48.2 per cent last year, compared with the 42.6 per cent contribution from manufacturing and construction.

The government has taken a series of steps since last year to try to put a floor beneath sputtering economic growth, including accelerating infrastructure spending and repeated reductions in interest rates and banks' reserve ratio. But growth is still expected to moderate this year to around 7 per cent, the slowest in a quarter of a century.