Hong Kong: China's auto sales grew at a slower pace in June and a services-industry index slid to a 15-month low, adding to signs that the economy leading the world recovery is cooling.

Passenger-car purchases rose 10.9 per cent from a year earlier, down from May's 25 per cent gain, the China Automotive Technology & Research Centre said yesterday. The services-industry measure fell to 55.6 from 56.4, HSBC Holdings and Markit Economics said in an e-mailed statement.

Yesterday's data adds to weaker numbers in June for manufacturing indexes and a second measure of the services industry after the government cracked down on property speculation and as the effects of stimulus measures fade. A slowing economy could lead officials to delay returning to pre-crisis policies.

"It looks like growth will slow to eight per cent in the fourth quarter of this year with risks on the downside," said Paul Cavey, an economist with Macquarie Securities in Hong Kong. "The government will be worried at that point and may loosen policies," he added.

HSBC's purchasing managers' index for services covers more than 400 companies in transport and communication, financial intermediation, business services, computing and information technology, hotels and restaurants.

Property-price bubbles

The latest reading "reflects the effect of property market tightening measures," said Qu Hongbin, a Hong Kong-based economist at HSBC. "This, combined with the moderating manufacturing production, implies the economy is cooling off sequentially."

China, the world's fastest-growing major economy, expanded 11.9 per cent in the first quarter from a year earlier, the fastest pace in almost three years. Goldman Sachs Group last week cut its 2010 growth forecast to 10.1 per cent from 11.4 per cent.

The Shanghai Composite Index fell 0.3 per cent as of 2.23pm local time yesterday, extending this year's decline to 27.5 per cent.

Baosteel Group, China's second-biggest steelmaker, said yesterday that demand for the metal, including from automakers, has weakened. Sales of cars, sport-utility vehicles and multipurpose vehicles rose to 839,228 last month, the China automotive centre said.

Premier Wen Jiabao reiterated the government will both stay flexible and maintain continuity in setting policy amid "very complicated" situations at home and abroad, in a statement posted on a government website on Sunday.

The government focused in the first half of the year on cutting the risk of property-price bubbles.

"Property market transactions have slowed too much — the measures have not only stopped speculation but also stopped upgraders and first-time buyers," Macquarie's Cavey said.

"So construction will slow and the government will therefore have to backtrack on some of its tightening policies," he said.

Austerity measures in European economies could also pose a threat to export demand in the second half of this year.

So far, China is part-way through exiting crisis policies, after raising banks' reserve requirements, scrapping the yuan's peg to the dollar and setting a reduced target in 2010 for new lending after a record increase in credit in 2009. Benchmark interest rates are yet to rise.

Ahead of india

China will maintain its lead over India in mergers and acquisitions as companies in the world's third-largest economy grow bigger and need takeovers to tap new markets, said Todd Marin, head of investment banking for Asia excluding Japan at JPMorgan Chase.

"M&A activity involving China will expand as there are more corporates across more industries evaluating M&A opportunities and actively pursuing transactions than ever before," he said in an interview on Friday.

"While China is driving much of the activity, M&A activity is fairly well diversified across markets including Australia, Southeast Asia, and India."

China accounted for 36 per cent of the $242.2 billion (Dh889 billion) in deals in the Asia-Pacific region excluding Japan this year as of July 2, and had a total of more than $100 billion in each of the previous three years, according to data compiled by Bloomberg. Transactions worth $39.4 billion so far this year in India has surpassed the South Asian nation's 2009 tally, the data showed.

In India, "there will be some big deals, but we expect that the majority of the activity will come from the large corporates that have traditionally been active in M&A," the 48-year-old banker said in the interview in Hong Kong. He joined JPMorgan in 1989 and moved to Asia from New York in 2002 to head the region's M&A business.

The New York-based company ranks second among advisers on takeovers in the Asia-Pacific region excluding Japan this year, according to Bloomberg data as of Friday.

Across the region, acquisitions this year in the airline, natural resource, automobile and logistics industries may outpace the number of deals in other areas, Marin said.

Southeast Asia will get in the spotlight for mergers and acquisitions in the next six months as countries focus on natural resource and food production, and economic growth is stable, Marin said.