China slowdown hits services sector, India sees growth at 7-month high

Beijing: Activity in China’s non-manufacturing sectors hit a near two-year low last month, official figures showed, adding to concerns over a slowdown in the world’s second-largest economy.

The official non-manufacturing Purchasing Managers’ Index (PMI) released Wednesday fell from 56.3 in August to 53.7 in September — its lowest point since November 2010.

A reading above 50 indicates expansion, while anything below points to contraction. The previous low was 53.2, official statistic show.

The figure comes after China said Monday that activity in the vital manufacturing sector came in at 49.8 in September, a slight increase from August but still showing shrinkage.

China’s economic growth slowed to 7.6 per cent in the three months through June from the same period the year before, the weakest in three years.

Various statistics for the third quarter, which ended Sunday, have been broadly disappointing, fostering expectations that growth has slowed further and that China could see a seventh consecutive quarter of moderating expansion.

Target

Gross domestic product figures for the three months through September are scheduled to be released in mid-October.

Chinese authorities have expressed confidence they will achieve their 2012 growth target of 7.5 per cent, though that would still mark a sharp slowdown from the 9.3 per cent reached last year and 2010’s 10.4 per cent.

They have taken steps this year to bolster the economy with two interest rate cuts in quick succession and by easing restrictions on how much money banks must keep on hand in an effort to boost lending and growth.

The Chinese slowdown comes at a particularly sensitive time for China’s ruling elite, which is preparing for a once-in-a-decade transition of power.

The non-manufacturing index is based on monthly questionnaires sent to purchasing executives in 1,200 companies in the retail, aviation, real estate and construction industries.

The purchasing managers’ index rose to 55.8 from 55 in August, HSBC Holdings Plc and Markit Economics said in a statement on Thursday. A number above 50 indicates growth.

Prime Minister Manmohan Singh’s administration last month raised diesel prices to pare fuel subsidies and opened India to more foreign investment, snapping two years of policy paralysis to fight the slowest economic growth since 2009. The cabinet on Thursday is due to consider proposals to lift caps on overseas investment in the insurance and pension industries.

“The measures are positive,” Shubhada Rao, chief economist at Yes Bank Ltd in Mumbai, said before the data. “Sentiment has improved but results will be seen only by the end of the year.”

Investment

The rupee has surged 6.6 per cent against the dollar since September 13, the day the government started unveiling the changes. It strengthened 0.3 per cent to 51.9888 per dollar as of 10.35am in Mumbai. The BSE India Sensitive Index advanced 0.9 per cent. The yield on the 10-year bonds due June 2022 was at 8.14 per cent from 8.15 per cent on Wednesday.

Singh permitted more investment in the retail, aviation, energy and broadcast industries last month. He is also seeking to speed up road, rail, port and power projects to ease bottlenecks that have stoked price pressures.

Reserve Bank of India Governor Duvvuri Subbarao said on Wednesday the central bank expects a moderation in inflation, which has exceeded 7 per cent for most of this year. Subbarao has left interest rates unchanged since a reduction in April to 8 per cent from 8.5 per cent, the first cut since 2009.

The Indian economy will expand 5.6 per cent in the year through March 2013, the weakest pace in a decade, according to forecasts released yesterday by the Asian Development Bank.