China's services sector entered a seventh straight year of expansion in December, a survey of purchasing managers showed on Thursday, but a slowdown in the world's second-biggest economy saw overall levels of activity mired at three-month lows.
The HSBC China services purchasing managers index (PMI) stood at 52.5 in December, unchanged from November, signalling a steady if sluggish expansion in the sector that is increasingly a barometer for domestic economic conditions. "Unmoved on November's three-month low, the service sector PMI pointed to subdued growth momentum," Qu Hongbin, chief economist for China and co-head of Asian economic research at HSBC said in a statement accompanying the index.
That said it was the 74th straight month that the index had read above 50 - the level that demarcates expansion from contraction - and a level it has been above every month since the survey started in November 2005. The steady state of the HSBC index, compiled by UK-based data provider Markit, will reinforce the views of some investors that China's economic slowdown will be modest and short-lived. A solid rebound in the official services PMI earlier this week followed on from a gentle bounce in manufacturing activity in both official and private sector surveys. But the sensitivity of investors to any uptick in headline economic news is arguably a function of how skewed their portfolios are towards anticipating further deterioration.
The latest index reading of 52.5 is above levels in the first quarter of 2011 when Chinese monetary tightening was in full swing, dampening both domestic inflation and economic activity. Investor expectations are building that China is poised to announce a further easing of monetary conditions after a 50 basis point cut in late November to the ratio of cash banks are required to keep as reserves.
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