Growth in activity in China’s service sector slowed sharply in September,according to the Caixin Purchasing Managers Index (PMI)  in contrast with official data from the National Bureau of Statistics (NBS) showing a faster pace of growth.

The Caixin China services purchasing managers index slipped to 50.6 in September from 52.7 in August, the slowest in 21 months, Caixin Media Co. and research firm Markit said.

A reading above 50 indicates an expansion in activity from the previous month, while a result below 50 points to a contraction.

Commenting on the data, Dr. Zhengsheng Zhong, Director of Macroeconomic Analysis at CEBM Group said:

“The Caixin China General Services Business Activity Index came in at 50.6 in September, the lowest since December 2015 and down 2.1 points from the previous month. Although new business rose at a slower rate last month than in August, input costs and prices charged both increased. The Caixin China Composite Output Index was 51.4 last month, the weakest since June and down 1.0 point from August. The Chinese economy generally held up well in the third quarter. However, the expansion in both manufacturing and services cooled in September, suggesting downward pressure on economic growth may re-emerge in the fourth quarter.”

China’s official non-manufacturing PMI, which includes the construction sector, rose to 55.4 in September from 53.4 in August, the NBS said on September 30.

Here’s a take on the divergence in the PMIs from Goldman Sachs analysts Maggie Wei, Yu Song and MK Tang:

The Caixin service PMI has a slightly higher correlation with tertiary industry (service sector) real sequential GDP growth, compared with the NBS service PMI (based on data since 2012). The Caixin services PMI implies weaker activity growth in the service sector in September vs. August. Despite the divergence in the headline service PMIs, inflation sub-indexes under both the NBS and Caixin service PMI surveys increased- the trend of higher inflationary pressures in the service sector seemed more certain, based on the two service PMIs.


Source : Barron’s