China services PMI tumbles

China has thrown up a curly one this morning with the HSBC services PMI weakening sharply in April:

April data signalled an increased amount of business activity in the Chinese service sector. However, the rate of expansion slowed to a marginal pace that was the weakest since August 2011. Similarly, new business growth eased to a 20-month low, with new orders increasing only modestly in April. The slower rates of activity and new business growth contributed to the first reduction in services employment since January 2009. That said, the rate of job losses was only marginal. Concurrently, service providers are the least optimistic towards the one-year business outlook since data collected began in November 2005.

After adjusting for seasonal factors, the HSBC China Services Business Activity Index posted 51.1 in April, signalling only a marginal increase in activity in the Chinese service sector.

Moreover, down from 54.3 in March, the headline index indicated the slowest rate of expansion since August 2011. A number of respondents nonetheless attributed growth to improving market conditions, which have strengthened client demand.

Behind the slower rise in activity was weaker new business growth. The expansion of new orders was the slowest in 20
months, and modest overall.

…Service providers were confident in April that business activity would increase in 12 months’ time. However, the degree of positive sentiment was the weakest since data collection began in November 2005. Over 27% of respondents expect activity to increase over the next year, with new projects

This throws up a series of questions:

• where is the January and March credit surge?
• how can China possibly be rebalancing if services stall?
• why are its service sectors back at the levels seen last year during widely recognised weakness?
• can China grow at all without heavy investment?

130506 HSBC China Services April 2013 PMI – Report