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China Service Sector Grows

China Service Sector Grows

07/03/2014

BEIJING--China's service sector continued to expand, though a mixed picture given by surveys released Thursday suggests the growth is still being propped up by government stimulus, economists said.

China's official nonmanufacturing purchasing managers index fell to 55 in June from 55.5 in May, the China Federation of Logistics and Purchasing said Thursday. A separate measure, the HSBC China services PMI, rose to 53.1 in June from 50.7 in May, the highest reading in over a year, according to HSBC Holdings PLC.

The official PMI tends to reflect conditions at larger state-owned companies while the HSBC measure favors smaller private companies. A reading above 50 indicates month-to-month expansion while a level below that points to contraction.

The positive picture follows the report from earlier this week of an uptick in June for factory activity, with the official manufacturing PMI rising in to 51, from 50.8 in May.

"In the short term, economic growth has stabilized, but it is still a weak recovery," said Macquarie Group economist Larry Hu. "The improvement is largely driven by the government's stimulus measures and I expect them to keep rolling out more easing measures in the second half."

After growth slowed earlier this year, the government initiated a series of measures to reinvigorate the economy, particularly by getting credit flowing to small businesses and rural areas. The targeted stimulus, however, is battling against a swooning real-estate sector that is saddled with oversupply.

When related industries such as steel and construction are included, the property sector accounts for over 20% of China's gross domestic product, analysts say. Land sales in 300 cities fell 29% year-over-year in the second quarter to 247.7 million square meters, data provider China Real Estate Index System reported this week.

Tepid economic growth in the U.S. and Europe as well as decelerating output in the world's second-largest economy has economists looking closely at even minor Chinese data points. China's economy in the first quarter grew by 7.4% on an annual basis--its lowest level in 18 months--compared with 7.7% in the final quarter of 2013.

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