China Service Sector Gauge Slips to Lowest in 6 Months in January

        BEIJING--China's economy got another dose of bad news Wednesday as a gauge of activity in the services sector slipped to its lowest level in six months in January.
        The data were seen by some economists as a fresh sign that the government needs to step up support for the economy--either with more fiscal spending or monetary easing.
        The HSBC China services purchasing managers index came in at a weak 51.8 in January, still in expansion territory but down from 53.4 in December and suggesting the sluggishness in the nation's factory sector is hitting services as well.
        "The sector should have been expanding ahead of the Chinese Lunar New Year when people traditionally go shopping and prepare for the holiday," said Lu Zhengwei, an economist at Industrial Bank.
        The Lunar New Year holiday, the most important festival in the Chinese calendar, begins Feb. 18 this year.
        Service activity in January was still growing compared with the previous month, as anything over 50 indicates month-to-month expansion, while a level below that points to contraction.
        But services--which accounted for 48% of China's gross domestic product--had been seen as a source of strength in an otherwise disappointing performance.
        "This may indicate a broader economic slowdown, as the service sector was the one bright spot," said Mr. Lu.
        China's economy posted 7.4% growth in 2014--its slowest pace in 24 years--hit by a combination of a property market slump, weak domestic demand and a slow global recovery. The government is widely expected to lower its economic growth target for this year to about 7%.
        "Given continued contraction of the manufacturing sector, we believe more easing measures are warranted to support growth in the coming months," said Qu Hongbin, HSBC's chief economist for China.
        China has so far used targeted government spending, particularly on railways and subways, to give the economy a lift. In November, it also cut interest rates for the first time in over two years to reduce borrowing costs for struggling companies and has pumped short-term funds into the banking system to make it easier for banks to lend.
        Analysts have suggested policy makers may cut interest rates again or reduce the bank reserve requirement ratio--the proportion of deposits that banks keep with the central bank--effectively letting banks lend more.
        HSBC said its China Services PMI, which is based on data compiled from monthly replies to questionnaires sent to purchasing executives at more than 400 private service-sector companies, showed both input and output price indexes declined in January from the previous month while new order growth slowed. But service providers continued to add to their staff numbers in January amid reports of ongoing planned company expansion, according to HSBC.
        An official measure of health in China's services sector--the nonmanufacturing purchasing managers index, which also includes the construction sector--fell to 53.7 in January from 54.1 the previous month, data from the China Federation of Logistics and Purchasing showed Sunday.
        For the manufacturing sector, the results were worse in January. Both the official and HSBC manufacturing PMIs were below the 50 expansion level in January, indicating substantial weakness in factory activity.
        Grace Zhu and William Kazer contributed to this article.
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        (END) Dow Jones Newswires

        February 03, 2015 23:45 ET (04:45 GMT)

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