BEIJING (Reuters) – China’s services sector grew at its fastest pace in three months in December as new orders remained strong, a private survey showed, an encouraging sign of strength even as manufacturing activity slows and the property market softens.
The robustness in the services sector contrasted sharply with surveys last week which showed Chinese factories were struggling at the end of 2014, suggesting a further loss in economic momentum.
Those findings reinforced expectations that more stimulus measures are on the cards, either in the form of more liquidity injections by the central bank, interest rate cuts or reductions in the amount of reserves banks must hold to encourage them to lend.
“Given the traditional industrial sector is still under pressure, more policy loosening is necessary,” said Zhou Hao, ANZ economist in Shanghai.
“Recent moves by the central bank showed they actually kept a relatively loosening policy stance to lift growth, even though they seem to not want to send a strong easing signal.”
The HSBC/Markit Services Purchasing Managers’ Index(PMI) picked up to 53.4 last month from November’s 53.0, well above the 50-point level that separates growth from contraction in activity on a monthly basis.
A sub-index measuring new business cooled slightly to 53.9 in December from a 2-1/2 years high of 54.2 in November, but remained well in expansion territory.
The labour market was also buoyant, with the employment sub-index hitting an 18-month high as companies expanded. Chinese leaders suggested last year they could tolerate somewhat slower economic growth as long as labour markets remained healthy.
But services firms were not so optimistic on the outlook. A sub-index for business expectations for the year ahead dipped to the lowest level since August 2014, with many firms saying increasing competition was dampening their pricing power.
“The services sector continued to hold up well amidst the manufacturing downturn, providing some counter-weight to the downward pressures on the economy,” said Qu Hongbin, chief China economist at HSBC.