China Services to Manufacturing Suggest Slowdown Stabilizing (3)

China’s economy is showing signs of

stabilizing after slowing for two straight quarters, with

official manufacturing and services indexes rising and gains in

gauges of business expectations.

The non-manufacturing Purchasing Managers’ Index rose to

54.1 in July from 53.9, the first acceleration since March,

government data showed Aug. 3, following last week’s unexpected

gain in a manufacturing PMI. Readings above 50 indicate

expansion. A services index from HSBC Holdings Plc and Markit

Economics was unchanged at 51.3, a separate report showed today.

The reports may bolster confidence that Premier Li Keqiang’s policies are helping prevent a deeper slowdown in

growth, allowing him to pursue reforms that will secure more

sustainable longer-term expansion. The country’s economic-planning agency said yesterday the construction of

transportation-related infrastructure projects will be

accelerated, adding to efforts to boost domestic demand that

have included tax-system changes and help for small companies.

“The PMI is supposed to be a leading indicator so we are

witnessing a stabilization and a sign the economy isn’t slowing

down at a faster rate,” said Steve Wang, Hong Kong-based chief

China economist with Reorient Financial Markets Ltd. “A lot of

economy-boosting measures have been put in place since the

beginning of the year and there’s a time lag for those to kick

in, so we should see a bit of a rebound in the fourth quarter.”

Stocks Rise

The benchmark Shanghai Composite Index of stocks rose 0.8

percent at 2 p.m. local time. The central bank said in an Aug. 2

report that it has rolled over some maturing three-year bills

and will keep doing so in the future to lock up long-term

liquidity.

China’s economy grew 7.5 percent from a year earlier in the

April-June period, slowing for a second straight quarter and

extending the longest streak of sub-8 percent expansion in at

least two decades. Wang says he sees second-half growth of 7.6

percent, the same as the pace in the first six months.

The government set a 2013 expansion target of 7.5 percent

after gross domestic product rose 7.8 percent last year, the

least since 1999. The country’s potential growth rate has fallen

to a range of 7 percent to 8 percent, the State Council

Information Office said last week, pledging not to allow

economic growth to decelerate outside a “reasonable zone.”

The State Council, led by Li, has indicated it will refrain

from implementing a stimulus package of the scale unleashed

during the 2008 global crisis. Instead, it has issued targeted

policies including tax breaks, support for infrastructure

investment and for small companies while curbing industrial

overcapacity and reining in financial risks to aid economic

restructuring.

New Airport

The National Development and Reform Commission said

yesterday that 10 transportation-related projects should begin

in the second half of the year and work on a new airport for

Beijing may start early, helping to boost growth in demand from

the transport industry. The commission has already approved

eight local rail projects including two new lines in Shenyang

and one in Wuhan, it said in a statement on accelerating

construction of infrastructure projects.

Beijing won approval for a new airport in the south of the

city in January and construction was scheduled to start in 2014,

the Beijing News reported on Jan. 13, citing Zhu Wenxin, a

project official. Investment is expected to exceed 70 billion

yuan ($11.4 billion), it said. Xinhua reported in April that the

airport will open in 2018.

Business Gauge

The non-manufacturing PMI was released by the National

Bureau of Statistics and China Federation of Logistics and

Purchasing. The index hasn’t dropped below 50 since a new data

series started in March 2011. A gauge of business expectations

in the survey rose to 63.9, the highest since December.

The non-manufacturing report indicates a “relatively good

start to second-half economic activities,” Cai Jin, a vice

chairman at the logistics federation, said in the Aug. 3 data

release. “The foundation and conditions to ensure stable

economic growth are there even though we continue to face

challenges.”

HSBC and Markit’s services gauge indicates “China’s

service sector has stabilized at a relatively low level of

growth,” Qu Hongbin, HSBC chief China economist in Hong Kong,

said in a statement.

The official manufacturing index, published Aug. 1,

unexpectedly rose to 50.3 in July from 50.1 in June and a

measure of business expectations rose to 56.4, the highest since

April. A separate gauge released the same day by HSBC and Markit

fell to 47.7, an 11-month low and the third straight month of

below-50 readings.

Employment Gauges

While the employment index in the official manufacturing

PMI had a below-50 reading for a 14th month, the gauge in the

non-manufacturing report showed expansion, with a figure of 51.3,

down from June’s reading of 51.5.

“Jobs aren’t being created in manufacturing, it’s services

where all the growth is going to come from, especially sectors

like e-commerce, with companies like Alibaba,” Reorient’s Wang

said, referring to China’s biggest e-commerce company that runs

online shopping platform Taobao Marketplace.

Service industries accounted for about 45 percent of GDP

last year, according to statistics bureau data, up from 41

percent in 2003. The government is seeking to increase the share

to 47 percent by 2015, according to its five-year plan. In the

U.S., services comprise about 90 percent of the economy.

–Alan Wong, Luo Jun, Nerys Avery. With assistance from Regina

Tan in Beijing and Rina Chandran in Singapore. Editors: Nerys

Avery, Scott Lanman

To contact the reporter on this story:

Alan Wong in Hong Kong at

awong478@bloomberg.net

To contact the editor responsible for this story:

Paul Panckhurst at

ppanckhurst@bloomberg.net

China Services to Manufacturing Suggest Slowdown Stabilizing (3)