China's Services Sector Bounces Back

Activity in China's services sector has bounced back in August, after a historic drop in July, two surveys showed.

The HSBC/Markit services purchasing managers' index (PMI) shot up to 54.1 in August - the strongest since March 2013 - from a record low of 50.0 in July.

A separate government non-manufacturing purchasing managers' index (PMI), published by the National Bureau of Statistics (NBS), rose to 54.4 from July's six-month low.

A reading above the 50 threshold demarcates expanding activity from a contraction.

Chinese equities reacted positively to the PMI readings, with Hong Kong's Hang Seng Index finishing 2.30% higher while the Shanghai Composite Index closed 1% higher.

Bill Adams, senior international economist for PNC Financial Services Group said in a note to clients: "...Chinese real GDP growth is probably picking up in the third quarter of 2014. The economic expansion is quite uneven, as exports accelerate, investment slows, and the real estate correction intensifies, but on balance, headline real GDP growth is probably a bit faster to the third quarter.

Growth is strong enough to prevent a rise in unemployment and attending social unrest. But until the government announces a credible workout strategy for China's rising mound of non-performing loans, it seems early to predict that the third quarter's stronger growth can be sustained."

Hongbin Qu, chief economist, China & co-head of Asian economic research at HSBC said in a statement: "Apart from the rebound in the headline number, other indices suggest a mixed picture rather than a broad-based improvement.

The economy still faces downside risks to growth in the second half of the year from the property sector slowdown. We think policy makers should use further easing measures to help support the recovery."

Premier Li Keqiang said in July that economic growth of slightly more or less than 7.5% this year will be acceptable as long as it still led to new jobs and higher wages.

China's annual economic growth inched up to 7.5% in the second-quarter from an 18-month low of 7.4% in the first quarter - supported by a wave of modest policy stimulus measures.

The services sector accounted for 46.1% of gross domestic product in 2013.

Services overtook manufacturing as China's leading employer in 2011.