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China HSBC November Services PMI Eases on Soft New Orders

Andrea Pistolesi | Getty Images

Growth in China's services sector slowed in November as lackluster growth in new orders and a surge of recent hires reduced work backlogs.

The HSBC Purchasing Managers Index for China's services sector released on Wednesday showed the index slipped to 52.1 in November from October's 53.5, as sales prices continued to fall despite a rise in input prices.

The index, and a closely followed sub-index that tracks new orders, both remained above 50, the dividing line between accelerating and slowing rates of growth.

(Read More: Factory Surveys Show China Reviving, Global Rebound Fragile)

Despite the moderating growth of services activities in November, services providers hired more workers and became more optimistic on future outlook," said HSBC's China chief economist Qu Hongbin.

"Services sectors' performance is likely to get a lift from the recovering manufacturing growth, as the filtering-through of policy easing is likely to boost domestic demand in the coming months."

Overall, China's economic health has improved since September, with an array of indicators from factory output to retail sales and investment showing Beijing's pro-growth policies are starting to gain traction.

China's annual economic growth dipped to 7.4 percent in the third quarter, slowing for seven quarters in a row and leaving the economy on course for its weakest showing since 1999.

Recovery Expectations

Given the recent signs of recovery, many analysts expect the economy to snap out of its longest downward cycle since the global financial crisis, and start to trend upwards in the fourth quarter.

The end of a destocking cycle and a greater pace of investment are expected to keep driving up domestic demand.

In line with that trend, the official non-manufacturing PMI for November released on Monday inched up to 55.6 from 55.5 thanks to strong construction services growth.

The official PMI generally paints a rosier picture than the HSBC PMI because the official survey focuses on bigger, state-owned firms and covers more sectors, while the HSBC PMI targets smaller, private companies. There are also differing approaches to seasonal adjustment between the two surveys.

China's services sector has generally grown more than its manufacturing sector, as the economy matures and diversifies. The HSBC survey has remained above the 50-point mark since its inception in November, 2005.

(Read More: Has China's Long-Awaited Recovery Finally Arrived?)

The two service sector surveys follow the National Statistic Bureau's manufacturing PMI survey that showed China's growth reviving in November despite warning signs that such growth still depends primarily on state-led investment.

The official PMI survey hit a 7-month high and HSBC's manufacturing PMI hit a 13-month high.But the HSBC sub-index for output prices fell despite a rise in a different sub-index for input prices, indicating that firms are unable to pass rising costs on to buyers.

HSBC's service sector respondents also saw sales prices fall for the second month in a row, even though input costs rose, Markit Economics, which compiles the survey, wrote in an accompanying note.

That implies that demand remains weak, as does the reduced backlog of work. But Markit said firms were hiring more employees in hopes of an improvement.

"A number of survey respondents commented that rising workforce numbers reflected increased amounts of new business," Markit said.

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