China HSBC May services PMI rises to 53.5, new business up most since 2012

A factory worker in Huaibei, east China's Anhui province. -- PHOTO: AFP 
A factory worker in Huaibei, east China's Anhui province. -- PHOTO: AFP 

SHANGHAI (REUTERS) - Activity in China's services sector accelerated in May, the HSBC/Markit Purchasing Managers'Index (PMI) showed on Wednesday, as new business rose at the fastest pace in three years.

The headline PMI for May was 53.5, up from 52.9 in April and well above the 50-point level that separates expansion from contraction. May is the fourth straight month of acceleration.

The new business sub-component was at 54.4, up from 52.8 in April and the highest reading since 54.7 in May 2012.

Moreover, employment in the service sector grew at the fastest rate since January 2013, the survey showed, an encouraging sign for policymakers battling a sharp slowdown in the nation's manufacturing sector, China's traditional jobs engine.

Another piece of good news was the pricing sub-components of the PMI, which showed that the both input and sales prices rose modestly in May, reversing a three-month deceleration trend which had resulted in prices charged falling outright in April. Nonetheless, input prices rose faster than sales prices, suggesting companies were facing deteriorating margins.

Companies in the survey cited recovering oil prices and higher staffing costs as key factors behind rising costs.

Despite the brightening outlook in services, economists remain cautious on China's overall economic trajectory, as credit growth remains weak and the manufacturing sector remains under pressure from a strong yuan and overcapacity in key industries.

A Reuters poll in April showed most analysts expect the economy to expand 7 per cent in 2015, right in line with the government's growth target, provided authorities further loosen monetary policy to stoke activity.

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 to the 42.6 per cent contribution from manufacturing and construction.