Services PMI shows modest July expansion

Activity in China’s services sector defied the country’s economic cool-down to expand modestly in July, a private survey showed Monday, as new business orders recovered from a multi-year low in a rare sign of resilience.

But that was tempered by a fall in prices charged by companies to a nine-month low, suggesting demand was still too weak for them to raise prices, and business expectations hovered near their lowest since 2005.

The HSBC/Markit Purchasing Managers’ Index (PMI) for the services industry stood at 51.3 in July, unchanged from June and just a whisker above a 20-month low of 51.1 struck in April.

A reading above 50 suggests business grew compared to a month ago, while an outcome below 50 points to contraction.

China’s economy is set to grow this year at its weakest pace since 1990 as flagging foreign and domestic demand weighs on exports and factory production. A slowdown in investment has further dragged on growth.

“China’s service sector has stabilized at a relatively low level of growth,” said Qu Hongbin, an economist at HSBC.

“But profit margins continue to be squeezed. Without a sustained improvement in demand, services growth is likely to remain lackluster, putting downside pressures to employment growth.”

The sub-index for new orders rebounded to 52.3 from June’s reading, which was the lowest in over four years.

A similar, official survey released Saturday showed the non-manufacturing sector picked up in July as support measures for small firms helped improve sentiment, though companies noted inflation was also picking up and pushing up costs.