China Caixin services PMI may post a slowdown: CBA

A key pulse check on China's economy due today is likely to show the services sector continued to hum along in April, but a broader slowdown looms, Li Wei, a China economist at Commonwealth Bank of Australia, told CNBC.

The Caixin services purchasing managers' index (PMI) for April, compiled by Markit, likely moderated to around 52, Li estimated, from March's 52.2. A reading above 50 indicates activity is growing, while one below that level suggests a contraction. The survey is due for release at 9.45 a.m. SIN/HK on Thursday.

That would be in line with the official services PMI, released at the weekend, which came in at 53.5 in April, down a tad from 53.8 in March. The Caixin survey focuses on small- and medium-sized enterprises, while the official data tracks larger companies.

"In the second quarter, the general growth momentum in China should remain relatively healthy, given that the housing market is recovering, the banks are extending more loans to the sector, so basically speaking the services sector should remain resilient and in healthy shape in the second quarter," Li said.

In addition to housing, Li also sees momentum coming from infrastructure investment, particularly in the utilities sector, which includes electricity and water.

While the services survey's cousin, the Caixin manufacturing PMI, tends to be more closely watched, China's pivot toward domestic consumption and away from a manufacturing- and investment-led growth means the service sector, which includes consumer industries such as real estate, retail and leisure, has become the the majority of the mainland economy. It's also a key barometer of consumption, accounting for more than 50 percent of gross domestic product (GDP).

But while Li expects services will continue to hum along, he also expects the economy's momentum will slow later in the year.

"This growth recovery is very much temporary and very much based on continued economic stimulus and without them, growth will decline again," he said, forecasting that momentum would decline in about four to five months.

China's policy makers have bolstered growth over the past year through a flurry of interest rate cuts and reserve requirement ratio (RRR) reductions for banks.

Li expects that will continue, forecasting two more RRR cuts, probably late in the third quarter or in the fourth quarter, and another rate cut in the fourth quarter.

The positive performance of the services sector has been countered by a continued manufacturing contraction.

The Caixin Manufacturing PMI, released earlier this week, fell to 49.4 in April from 49.7 in March. Economists polled by Reuters had forecast a reading of 49.9. It was last in expansionary territory in February 2015.

The official PMI printed at 50.2 in April, the second successive month of expansion, the weekend's figures showed.

—Nyshka Chandran contributed to this article.

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—By CNBC.Com's Leslie Shaffer; Follow her on Twitter @LeslieShaffer1