Econintersect: While China’s manufacturing sector and residential real estate markets are hesitant at 
best, other sectors of the economy seem to be moving ahead. The HSBC China Services Business Activity Index soared in August to 54.1, up from a record low of 50.0 in July. The official government (China Federation of Logistics and Purchasing) non-manufacturing PMI (Purchasing Managers’ Index) rose slightly to 52.4 in August, up from 52.2 in July. The HSBC survey covers small amd medium siz copmpanies while the government survey is for large and mostly government owned enterprises.
Readings above 50 are associated with economic expansion. The non-manufacturing sectors have stronger readings than those for the manufacturing PMI surveys. But both smaller manufacturing companies (HSBC PMI = 50.1) and large enterprises (official manufacturing PMI = 51.1) indicate expansion in spite of significant declines from July to August.
The non-manufacturing PMI has had a remarkable lack of volatility over the past three years:
The graph below shows that the output of the services sectors has been considerable higher than manufacturing, most of the time, since the end of 2010.
Services contributed 46% of China’s GDP and employs more people than manufacturing; so these numbers are an important reflection on the condition of the economy.
The reaction to the large surge in the business activity index was subdued. Hongbin Qu, Chief Economist, China & Co-Head of Asian Economic Research at HSBC, commented on the China Services and Composite PMI™ data:
“The headline HSBC China Services PMI rebounded to a seventeen-month high of 54.1 in August, after registering an all-time low reading in July. Apart from the rebound in the headline number, other indices suggest a mixed picture rather than a broad-based improvement. The economy still faces downside risks to growth in the second half of the year from the property sector slowdown. We think policy makers should use further easing measures to help support the recovery.”
Sources:
- Service sector activity rises solidly, while manufacturing output growth slows (HSBC press release, Markit, 03 September 2014)
- China Aug official services PMI at 54.4 vs 54.2 in July (Kevin Yao, Reuters)
- China Non Manufacturing PMI (Trading Economics, 03 September 2014)
- China Manufacturing Loses Momentum, But Stays in Expansion (GEI News, 01 September 2014)
