China’s services PMI stable at 54.1 in June

For the second quarter as a whole, Mainland service sector activity is expanding at a faster pace than in Q1 when it averaged 51.9.

According to HSBC, the service sectors now account of 43% of China’s GDP.

Here’s more from HSBC:

At 54.1, June's services PMI suggests growth of China's services sector is stabilizing at an elevated level. Such a steady pace of expansion, in turn, is lending critical support to employment growth. With service sectors accounting for 43% of GDP, this should lend further support to economic growth, enabling Beijing to keep current tightening measures in place for a few more months to slow inflation into 4Q.

New business inflows picked up, sending the sub-index from 54.3 in May to 54.5 in June, the highest level since October, in contrast to the continued slow down of China's manufacturing sectors. As a result, the employment sub-index stayed above 50 for the 29th consecutive month June and printed its highest reading this year.

On the inflation front, services providers facing a faster pace of input cost inflation, whose sub-index edged up to 56.8 in June from 56.2 in May, the highest reading since November. Despite am improving business environment, competition remains intense in China's services sector, so curbing the pass-through of higher input costs into final prices charged. Hence, the final price sub-index stayed above 50 at 51.5 (vs. 51.2 in May and 52 in 1Q).

Going forward, the outlook for China's services sectors remains bright despite Beijing's continued tightening of new bank lending and the private property market activity. China's consumer service sectors are expected to stay strong, underpinned by rapid income growth thanks to improving labour market conditions, and forthcoming individual income tax adjustments.

Resilient service sector activity should in turn offset the recent temporary weakness of manufacturing sector activity. With services sectors now accounting for 43% of GDP, the steady pace of expansion in Chinese services will should continue to support economic growth, so providing leeway for Beijing to keep its foot on the tightening pedal for a few more months.

Bottom line: We still expect China's GDP to expand by around 9% in 2Q and by 8.5 to 9 % in 2H. It is still too early yet for Beijing stop tightening.

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