China's services sector saw its slowest rate of expansion in nearly a year and a half in December, a private sector survey showed on Friday, in another piece of evidence that a fourth-quarter economic growth revival will remain modest.
The HSBC services Purchasing Managers' Index (PMI) for December softened to 51.7 in December from 52.1 in November. The December reading was the lowest since August 2011. A reading above 50 indicates growth is accelerating, while one below 50 indicates it is slowing.
The HSBC services PMI follows a complementary survey by the National Bureau of Statistics, which found non-manufacturing activity rose at its fastest pace in four months, to 56.1. The two surveys differ somewhat in methodology and scope, with the HSBC survey better reflecting the private sector and the NBS survey more focused on state-owned firms.
"Despite the moderation of December's headline services PMI, the underlying strength of services sectors improved in terms of stronger new business flows and employment growth," Hongbin Qu, HSBC's chief economist for China, wrote in a note accompanying the results.
He expects China's GDP growth to recover to about 8 percent in the fourth quarter, after slowing to 7.4 percent in the third.
Most indicators point to a fourth quarter recovery, but the growth momentum into 2013 is in question. The NBS manufacturing PMI in December matched November's levels but disappointed market expectations that the final month of 2012 would be stronger.
"Investors should be wary of getting too optimistic in coming months," wrote Ting Lu of Bank of America Merill Lynch earlier this week. He added that in 2012, asset prices were only bolstered by the broader economy in the second half of the year.
"In 2013, we expect exactly the opposite. The macro environment could remain supportive of asset prices in 1H, but will likely turn less supportive or even negative in 2H as GDP/IP/earnings growth slows and inflation rises."
Chinese service firms are generally optimistic, with one-third expecting activity to increase in the next year. "Optimism was generally attributed to improving market conditions, which were also expected to boost the growth of new business in the coming year," Markit Economics, which compiles the PMI survey for HSBC, wrote in an accompanying note.
A sub-index measuring new business orders rose moderately in December to 52.4, HSBC said, with only 13 percent of survey respondents reporting a higher level of new business that month.