China's non-manufacturing growth slower in July

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China's non-manufacturing activities expanded at a slower pace in July due to weakening domestic demand.

The official non-manufacturing Purchasing Managers' Index, which measures the performance of mostly state-owned enterprises in the service industry, declined to 55.6 in July from June's 56.7, the China Federation of Logistics and Purchasing and the National Bureau of Statistics said yesterday.

Above 50 indicates expansion.

Li Maoyu, an analyst at Changjiang Securities Co, said: "It confirms the economy is stabilizing as previous measures have started to take effect, but it also calls for more efforts to strengthen that process."

Component indices showed new business orders dropped half a percentage point from a month earlier to 53.2 in July, a reflection of slower growth in demand for services.

Private and export-oriented service companies, however, appeared to perform better in July.

HSBC and Markit's Business Activity Index posted 53.1 last month, up from June's 52.3.

"The gain in July's HSBC services and manufacturing PMIs implies that the slowdown of the Chinese economy is likely to have stabilized," said Qu Hongbin, chief China economist at HSBC.

"However, the pace of expansion suggested by the data remains only modest and is not sufficient to warrant a meaningful recovery," Qu said.

"To secure growth and employment, China still needs to step up policy easing, and fast-falling inflation allows them to do so," the economist said.

Earlier this week, two surveys of purchasing managers in the manufacturing sector also showed more improvement in the activities of private industrial companies compared to large state-owned enterprises.

The official Purchasing Managers' Index, a gauge of operating conditions among manufacturers, stood at 50.1 in July, indicating a slight expansion.

Some economists regarded that as a sign of a stabilizing economy, after the country cut interest rates twice in the past two months to spur growth in investment and domestic consumption.

Zhou Hao, an economist at Australia & New Zealand Banking Group Co Ltd, expected China to cut the reserve requirement ratio again soon to further replenish liquidity in the banking system. He also predicted that China's economic growth would rebound to 8 percent in the third quarter and 8.4 percent in the fourth quarter to secure growth of 8.2 percent for the whole year.

China's gross domestic product expanded at the slowest rate in three years of 7.6 percent in the second quarter.