December 4, 2011 / 10:45 PM / 7 years ago

China services data may bolster case for further easing

SHANGHAI (Reuters) - China’s services sector contracted in November, mirroring similar weakness in the country’s giant manufacturing sector and underlining expectations that Beijing can ease monetary policy further to cushion the blows of the global economy.

China’s official purchasing managers’ index for its non-manufacturing sector fell to 49.7 in November from 57.7 in October, the China Federation of Logistics and Purchasing said on Saturday. The 50-mark divides expansion from contraction.

A private-sector PMI on non-manufacturers from HSBC is due for release at 9:30 p.m. EST on Monday and may paint a similar picture of weakness in services as the euro-zone debt crisis weighs on the global economy. The HSBC gauge in October was running at 54.1, the strongest growth in four months.

PMI data in the past week has shown that both domestic and export orders are weakening, helping explain the central bank’s decision last Wednesday to cut reserve requirements for commercial lenders for the first time in three years.

The move to free up cash was a signal that the central bank was shifting toward loosening monetary policy to support the economy, which is widely expected to grow next year at less than 9 percent for the first time in a decade, economists said.

Indeed, former central bank adviser Fan Gang said in the Securities Times newspaper on Saturday that there was room for further cuts in reserve requirements provided inflation continued to fall.

“There is plenty of room for adjusting banks’ reserve requirements ratios,” he said.

The official manufacturing PMI on Thursday showed prices fell in November and Premier Wen Jiabao said on November 9 that prices had fallen since October.

Consumer inflation dropped in October to 5.5 percent, backtracking from a three-year high of 6.5 percent in July.

The official services PMI suggested the sector was weak due to softer consumption patterns and a slowdown in the construction industry.

“The retail, food and beverage industry-based consumer services were in an off-season, showing a more significant decline,” Cai Jin, a vice president with the CFLP, said in a statement.

The sub-index of new orders in services PMI declined to 47.2 in November, indicating they were actually falling, from 52.5 in October. Input prices for the Chinese services sector eased to 54.4 from 55.7 in October, showing inflationary pressures eased.

The services PMI index aims to give a snapshot of conditions in the services sector, which accounts for less than 45 percent of China’s economy, much less than in developed countries.

Last Thursday, the official manufacturing PMI fell to 49 in November from October’s 50.4, pointing to the first contraction in activity in nearly three years, or since the global financial crisis.

The HSBC manufacturing PMI dropped to a 32-month low of 47.7 in November from October’s 51.

“The November PMI final reading points to a sharp deterioration in business conditions across the Chinese manufacturing sector,” said Qu Hongbin, China economist at

HSBC.

Globally, the picture was similar.

A global PMI produced by JPMorgan, with research and supply management organizations, fell to 49.6, suggesting a contraction in global manufacturing.

Chinese officials have expressed growing alarm at the slide in the global economy as Europe struggles to produce a decisive solution to its debt crisis.

Vice Finance Minister Zhu Guangyao said last week that the world economy faced a worse crisis now than during 2008 and that stimulating growth should be a priority.

Vice Premier Wang Qishan in November said a chronic global recession was certain.

Although analysts say China is shifting policy to support growth, China’s Ministry of Housing and Urban-Rural Development suggested there would be no let up in policy controls on the property market.

The ministry told local governments not to relax home purchase restrictions, the China Business Journal said on Saturday, adding that the restrictions would continue despite their scheduled expiry in at least 11 cities by year-end.

The paper quoted an unnamed government official with the ministry as saying China’s current property controls of restrictive home buying would not change.

On Friday, China’s central bank said Chinese home prices were at a turning point. Home prices fell in October from September for the first time this year, official data showed, but a private survey has indicated that November could mark a third consecutive monthly fall.

Reporting by Melanie Lee; Writing by Kevin Yao and Neil Fullick; Editing by Mark Bendeich

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