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China Services Sector Grows at Slowest Pace in Nearly 2 Years

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Growth in China's services sector slowed sharply in April to its lowest point since August 2011, a private sector survey showed on Monday, in fresh evidence that economic revival will remain modest and may be facing wider risks.

The HSBC services Purchasing Managers' Index (PMI) fell to 51.1 in April from 54.3 in March, with new order expansion the slowest in 20 months and staffing levels in the service sector decreasing for the first time since January 2009.

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The HSBC services PMI follows a similar survey by China's National Bureau of Statistics, which found non-manufacturing activity eased to 54.5.

"The cooling of service sector activity in April likely reflected the knock-on effect of slower manufacturing growth, the impact of property tightening measures and the spreading bird flu," said HSBC's China chief economist Qu Hongbin.

A reading above 50 indicates activity in the sector is accelerating, while one below 50 indicates it is slowing.

Two separate PMIs last week showed that China's manufacturing sector growth had slowed, suggesting the country's exports engine is running into headwinds from the euro zone recession and sluggish growth in the United States.

In the latest survey, the sub-index measuring new business orders dropped sharply to a 20-month low of 51.5 in April, with only 15 percent of survey respondents reporting an increased volume of new orders that month, HSBC said.

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"Again, this started to bite employment growth. All these are likely to add some risk to China's growth in 2Q, as there's still a bumpy road towards sustaining growth recovery," Qu said.

The employment sub-index decreased to 49.6 in April, the first net reduction in staff numbers since January 2009, although HSBC said job losses were marginal, partially caused by firms down-sizing and employee resignations.

Employment is a decisive factor shaping government thinking because it is crucial for social stability. The services sector accounted for 46 percent of

China's gross domestic product in 2012, as big as the country's better-known manufacturing industry.

At the depth of the global financial crisis in 2008/2009, an estimated 20 million rural migrant workers lost their jobs, prompting Beijing to unveil a 4 trillion yuan stimulus package to shore up the economy and provide employment.

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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.

The government has set a 2013 growth target of 7.5 percent, a level Beijing deems sufficient for job creation while providing room to deliver reforms to the economy.